Last updated: November 10, 2010 12:06 am
Tannara Yelland — CUP Prairies & Northern Bureau Chief
SASKATOON (CUP) — BHP Billiton’s bid for control of the Potash Corporation of Saskatchewan was dealt a blow by the federal government when industry minister Tony Clement announced it did not provide a net benefit to Canadians and rejected the bid.
On Nov. 3, the Conservative government broke from traditional conservative values such as encouraging free trade and foreign investment to reject the Australian company’s bid. At $38.6 billion, BHP’s cash bid was well below the market value of PCS’ shares, which have been trading around $130 per share.
The bid attracted opposition from all corners. Saskatchewan’s provincial government was a vocal opponent of the bid, and both the University of Saskatchewan and University of Regina students’ unions spoke out against the proposal.
The USSU and URSU wrote a letter to Clement in support of Premier Brad Wall, asking Clement to block BHP’s bid. They cited the Conference Board of Canada’s estimate that the bid would cost Saskatchewan up to $3 billion in lost revenue.
The revenue loss could have been a problem for the U of S and U of R who both, as public universities, receive the bulk of their annual operating budgets from the provincial government. For 2010-11, the grant to the U of S was over $270 million.
While the offer was largely opposed in Canada, some have questioned if the bid’s rejection will discourage foreign companies to invest in Canada.
A Saskatchewan government employee said he feels confident there will not be a backlash and that this is an isolated case. Because Saskatchewan has 53 per cent of the world’s known potash reserves, the province can’t afford to sell the company that mines and sells this valuable resource.
Monika Çule, an associate professor of economics at the University of Regina, added that this is not the first time a country has refused foreign investment in order to protect a valuable resource or company.
“There are other countries that, for one reason or another, have rejected foreign bids,” Çule said. “That doesn’t mean the entire climate changes, because of one bid being rejected.”
But PCS, which was a crown corporation until the late 1970s, no longer serves only the interests of the provincial government.
“BHP Billiton’s public statements about Canpotex and about operating at full production create serious concern about the future of Canpotex,” Wall said in a news release on Oct. 21. “This in turn puts $6 billion worth of capital expansion and thousands of jobs at risk.”
Çule explained that some of the lost revenue could be due to different “management styles” between PCS and BHP.
“The model BHP has is sheer volume. It might sometimes put the prices down [because they are selling so much potash], and that might affect the royalties Saskatchewan government gets. PCS as it exists now regulates the supply in the market so the prices are always favourable, and in return the government always gets a steady stream of revenue.”
The company has 30 days to make a new offer, which the federal government will again review.
BHP spokesperson Ruban Yogarajah was unable to comment on whether the company would be making a new offer. Yogarajah said only that there was little he could say that was not on BHP’s Nov. 4 press release, which stated that “BHP Billiton is disappointed, but continues to believe that the offer is of net benefit to Saskatchewan,” and that the company will “review its options.”
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