Wednesday, November 3, 2010

There is a limit to the hollowing out of corporate Canada: Potash sale blocked.

It seems there is a limiting to the hollowing out of corporate Canada, even when a Conservative government is in power. The Harper government today bowed to pressure from Saskatchewan's premier and refused the sale of Potash corporation to Australia's BHP. The bid price for the company was a whopping 38.6 billion dollars, which would have been the largest in Canadian history had it closed.

Wall, the Saskatchewan premier, argued that the sale would have lost the province between 3 and 6 billion dollars in revenue from taxes and royalties had the sale gone through, he also noted that it was not in the nation's best interests to let this prime asset fall into foreign hands.

For shareholders in BHP, this is not the greatest of news in the near-term. If an Australian company is not permitted to buy their company, than there is not a chance that the government will allow deep pocketed investors from China or the Middle East to get their hands on it. Without an ability to sell their asset to a foreign enterprise, the buyout value of their shares drops immediately due to a lack of potential suitors at home. It is important to remember that should you ever consider buying a stock on take-over rumours, politics will always play an important role. If the suitor is foreign, there is always a large chance that it will not go through. In recent memory, both Alcan and Inco were snapped up by foreign concerns, which never looks good politically, regardless of the benefit to shareholders. There is often a disconnect between the concerns of "Main Street" and "Bay Street," and in this instance, Main Street Canada has won.

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