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Canadian province casts doubt on BHP move

October 20, 2010

“The Canadian province of Saskatchewan is at odds with BHP Billiton over the Australian miner’s $39bn hostile offer for PotashCorp, raising the prospect that the deal might be rejected by the federal government.

A person familiar with the deal said on Tuesday that BHP had offered extra elements valued at about C$370m (US$359m) to demonstrate that the deal would be of “net benefit” to Canada, as required under the Investment Canada Act.

However, the province is holding out for more, specifically a one-off levy to go some way to make up for lost tax revenues that would result from the deal.”

Source: Financial Times, October 20 2010

Observations:

  • Although the province does not have the power to veto the acquisition, the opinion of the local government will influence the national regulator and government when they decide about the deal’s ‘net benefit to Canada’.
  • BHP has announced it is willing to locate the global headquarters for potash in Canada; a logical move, as the acquired assets would be much larger than anything BHP already owns in the business.

Implications:

  • Losses to the Canadian government are reduced tax revenues and the potential loss of managerial jobs (which is covered by BHP’s intent to establish a potash HQ). Benefit to the country would be higher stability of operational jobs and increasing investment power in the national potash industry, which could increase tax revenues in the long term.
  • It is unlikely that the national government will support Saskatchewan’s opinion, as the tax loss on which the opinion is based is only a relatively small and one-off temporary loss. The national government might decide to compensate the province for the reduced tax income.

©2010 | Wilfred Visser | thebusinessofmining.com

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