Saskatchewan Premier Brad Wall on Oct. 21 said the proposed takeover of PotashCorp by BHP Billiton does not provide a “net benefit” to the people of Saskatchewan and Canada. “Therefore, the Province of Saskatchewan cannot support the current takeover bid by BHP Billiton,” Wall said.
Wall said the government has carefully evaluated the takeover bid and determined that it fails the “net benefit” test in three key areas – jobs and investment, Canadian control of an important Canadian resource, and provincial revenues.
“BHP Billiton’s public statements about Canpotex and about operating at full production create serious concern about the future of Canpotex,” Wall said. “This in turn puts $6 billion worth of capital expansion and thousands of jobs at risk.”
Wall said the proposed takeover also puts at risk a strategic natural resource. “The people of Saskatchewan are justifiably proud of PotashCorp and the success it has achieved here and around the world,” Wall said. “Do we want to add PotashCorp to that list of once-proud Canadian companies that are now under foreign control?”
Wall also said a BHP takeover would mean a significant loss in provincial revenues that are needed to fund roads, schools, and hospitals. “That revenue is also needed to keep our tax levels competitive for other businesses and for Saskatchewan families,” Wall said.
Wall also expressed concerns about the ability of federal authorities to enforce restrictions should approval be granted with specific conditions. “In the past decade, promises about maintaining jobs, corporate headquarters, and future investment have all been broken,” Wall said. “We simply cannot take that risk with this valuable resource that belongs to the people of Saskatchewan.”
Wall said the answer “no” is not unprecedented, and that Australia has done the same thing when its resources were threatened. “When Shell bid $10 billion for a controlling stake in the leading company developing Australia’s offshore natural gas reserves, an answer came in April of 2001, and that answer was also ‘no’,” Wall said. “Australia’s then-Treasurer, Peter Costello, said it was in the country’s best interests to have these offshore reserves to be ‘unequivocally managed, operated, and marketed for Australia’.
“It’s our government’s belief that the people of Saskatchewan deserve nothing less than a potash industry unequivocally managed, operated, and marketed for the benefit of Canada and Saskatchewan.”
Potash reiterates position as Saskatchewan company
PotashCorp said it shares Wall’s bright outlook for the company and the industry. It reiterated its own opposition to the BHP deal and its stance as a distinctly Saskatchewan and proudly Canadian company. It noted that the company employs 2,400 in Canada, and said that the few executives in charge of corporate support services who do not already live in Saskatoon are relocating. It noted that nine of the company’s 12 directors are Canadian citizens. Furthermore, it said Canpotex employs 88, with 65 of those in Saskatoon.
BHP responds to Saskatchewan opposition
On Oct. 20, BHP responded to Saskatchewan’s opposition even before it was officially announced by Premier Wall on Oct. 21. BHP says it continues to believe that the proposed acquisition will create net benefits for Saskatchewan, New Brunswick, and Canada, and that it is committed to working with the Government of Canada’s Investment Review Division (IRD) to secure the Federal Minister of Industry’s approval under the Investment Canada Act. A decision by the federal government is expected Nov. 3.
BHP reiterated that it is prepared to make significant commitments by way of undertakings to the Minister of Industry in order to ensure the proposed acquisition of PotashCorp will be a net benefit to Canada. These include:
- Returning the head office and management control of the potash business to Saskatchewan by basing its global potash business in the province and transferring relevant management functions currently based at PotashCorp’s centre in Chicago back to the province;
- Establishing BHP’s global potash headquarters in Saskatoon. The leadership team would live, pay taxes, and raise their families in Saskatoon – not just maintain residences there; and
- Maintaining current levels of employment at PotashCorp’s Canadian operations.
The province has stated that it will lose $3 billion in revenue as a result of the acquisition. BHP said it is confident it can address this concern and is prepared to make commitments which go beyond the requirements of prevailing Canadian legislation that should effectively address the tax loss concerns of the province.
“Our focus continues to be on working with the Government of Canada and demonstrating the significant net benefits we can bring to the country,” said Andrew Mackenzie, BHP Chief Executive Non-Ferrous. “We believe that by combining PotashCorp’s operations with BHP Billiton and returning control of PotashCorp to Saskatchewan, we can create a stronger business that will help ensure Saskatchewan is at the centre of the global potash industry for decades to come. BHP Billiton is willing to commit substantial resources to a province and a country that it believes is a welcome place to invest. We are ready to underline our commitment to Canada with substantial undertakings on jobs, taxes, investment, and community spending that will create immediate benefits for the people of Saskatchewan and the nation more broadly.”
BHP notes that it has a strong track record of meeting its commitments in Canada. Over the last decade, the company’s EKATI diamond mine in the Northwest Territories has exceeded its targets for spending with local businesses, employing Aboriginal and Northern workers, and supporting community projects. In that time BHP has spent over $3.4 billion with local suppliers in the Northwest Territories and created over 10,000 jobs, exceeding initial estimates of EKATI’s economic benefit.
“Blocking stake” floated as alternative
The latest alternative being floated as a buyer for PotashCorp is a “blocking stake” of 30 percent that would reportedly be bought up by Canadian pension funds. The theory is that this stake would be large enough to block BHP’s takeover attempt. Alberta Investment Management Co. (Aimco) was reportedly keen on this deal, according to The Globe and Mail.
Also a part of this theory is that potash from one of PotashCorp’s mines might be devoted to meet Chinese demand, with an escalator clause added to assure that prices are adjusted periodically. This is somewhat similar to the news this week that Sinofert will be buying over 3 million mt of Canpotex potash over the next three years with prices adjusted every six months (see Potash, page 9).
Other alternatives have also been mentioned, including the sale of PotashCorp nitrogen and phosphate assets. This would perhaps explain speculation in the industry this past week about a possible sale of the nitrogen assets to Yara International ASA and the phosphates to The Mosaic Co. To date, PotashCorp has complained that BHP has not leveled with shareholders about its true intentions regarding the N and P assets.