By Bill Mann, MarketWatch
Research in Motion
PORT TOWNSEND, Wash. (MarketWatch) — If you want a good example of an “annus horribilius,” just talk to any Research in Motion investor. The Canadian company’s stock has been dropping like the proverbial lead balloon. And that’s prompted a lot of recent talk of a possible takeover by the likes of (choose one) Google, Microsoft, Facebook, or Amazon.
But hold the smartphone. If such a bit bid ever comes — and RIM’s execs are insisting they’re not at all interested — what would Canada’s federal government do? Would it play goalie and block a hostile foreign takeover of the Ontario-based company, just like it did in 2010 when Saskatchewan’s huge Potash Corp. was about to be swallowed by Aussie mining giant BHP Billiton /zigman2/quotes/208108397/composite BHP +1.58% ?
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It’s a tricky question for Stephen Harper’s Conservative, business-friendly government, this matter of the Investment Canada Act, which has been around for years but has been used only twice — once to block the Potash sale, and previously, to stop Alliant Techsystems’ bid for MacDonald, Dettwiler and Associates in 2008.
Norton Rose lawyer Derek Burney stated in a recent paper by the law firm, “The concern is that Canada has become protectionist and will review transactions through a political lens with a sharp domestic-preference focus, rather than an international business and investment focus.”
Wants foreign investment
Partly because of RIM — whose stock was off 75 percent last year — there’s understandably increasing pressure on the Canadian government to clarify how it’s making decisions about international investment, which it claims it wants and which it surely needs.
If the Canadian government turns protectionist — RIM is, after all, one of its biggest brand names — it could have a real chill on foreign investment in the country. (And if any country should know about chills, this formerly icy Montreal resident can attest, it’s Canada).
RIM’s stock got a slight boost last week after Fox Business reported that Goldman Sachs was exploring “strategic options” for the Canadian smartphone maker. But it also followed the news about the Ontario-based company unveiling the latest version of its BlackBerry PlayBook operating system at the annual Consumer Electronics Show in Las Vegas.
So, the ball’s now in Ottawa’s court — especially if there is a hostile takeover of the company that’s lost a big chunk of market share to Apple /zigman2/quotes/202934861/composite AAPL +1.03% and Google’s /zigman2/quotes/205453964/composite GOOG +0.92% Android in its core business. It doesn’t help that RIM’s PlayBook tablet has been such a dud and not so smart. (One Canadian daily’s cartoonist happily suggests that unused PlayBooks be marketed as a burnable alternative-energy source).
Being Canadian counts
Having lived in Canada, I can attest that Canada has been protective of its businesses and its artists. To use but one example, there’s a Canadian Content rule in place that requires 30 percent of all songs played on Canadian radio stations to be Canadian in some form. Such a rule wouldn’t fly in the U.S. (And it’s unnecessary as well).
The Investment Canada Act — which would quickly be branded as full-bore Socialist if it were ever suggested in the U.S., requires Canada’s Industry Minister to weigh in on deals that are worth more than $312-million — and ensure they provide a “net benefit” to Canada.
But the “tests” used to determine if the acquisition would be of net benefit are largely subjective, allowing domestic politics to play a role in the decision-making process. Which they did in the Potash affair — Saskatchewan’s premier waged a last-minute, full-on campaign to stop the takeover, claiming his province would lose huge tax revenues. It worked, especially when Harper realized he might also lose some Conservative Saskatchewan seats in Parliament. Sorry, BHP.
Canada’s newspaper of record, Globe and Mail of Toronto, reports that the Canadian government was spared the need to make such a decision on the London Stock Exchange’s recent bid for the TMX Group, when LSE backed away after it became clear it did not have enough support from TMX’s shareholders.
“But,” the Globe added, “people involved in the TMX saga say that (Canadian) politicians made it clear in closed-door meetings that they were loath to reject another bid in the wake of Potash.”
That rejection would have left egg — or potash — on Canada’s face.
Major Canada brand
Still, when asked about RIM and a possible takeover, Harper said recently, “We all know this is an important Canadian company.” Canada has shown reluctance to let foreign companies buy major domestic corporations
This complicated situation indeed begs for clarity on the part of the Canadian government — before any hostile American takeover is announced.
Ottawa saying “Don’t even THINK about taking over RIM,” while bad news for potential suitors, would arguably be preferable to the current nebulous situation.
The Potash decision makes it look like these calls are made at the whim of politics. (Does the name “Keystone-XL” sound familiar?).
Canada needs to let the world know one way or the other whether it’s in favor of foreign investment.