The Conference Board of Canada has released a less than conclusive report on BHP Billiton’s hostile $38.6-billion takeover bid for Saskatchewan’s PotashCorp.
The report indicates that there will be little short-term benefit to Canada in terms of jobs if the international mining conglomerate succeeds in its hostile bid for PotashCorp, and that the provincial government’s tax revenue could be hit by as much as C$2 billion over the next ten years.
On the other hand, the report found that other than the loss of government revenue, there would be “few negative takeover effects,” and that long term implications were more favorable.
The Saskatchewan government will balance the report's findings on the takeover offer before making a recommendation to the federal government in Ottawa which has to determine, under the Investment Canada Act, if the bid is of net benefit to Canada before it can be approved.
Federal Industry Minister Tony Clement said he would extend the 45-day review of the deal by an extra 30 days. "I will take the time necessary to do a thorough review of this investment proposal," the minister said in a brief statement.
Bill Boyd, Saskatchewan's minister of energy and resources, said the report by the Ottawa-based think-tank confirms many of the concerns the province has about the takeover bid. "There are some benefits as well, but there are very significant risks, losses of hundreds of millions of dollars in terms of corporate tax and similar amounts in terms of royalties," he said.
It is also feared that if BHP acquires PotashCorp it will increase production, resulting in lower prices, which would hit provincial revenues even harder.
Some argue, however, that the latter scenario is even more likely if a rival bid from a Chinese buyer were to be successful, as potash is critical to food production in China and the state may be tempted to encourage cheaper food by subsidizing potash.
BHP Billiton made its offer of US$130 a share direct to PotashCorp shareholders in August, because the Potash board refused to engage in talks. PotashCorp shares have recently traded higher than BHP's offer, suggesting the market expects a superior bid.
A takeover of PotashCorp would deliver BHP Billiton a 20 per cent share of the global potash market.
