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Canada’s Dilemna

Over the next few days Canada’s Prime Minister will have to decide if BHP will be allowed to purchase Potash Corp (TSE:POT).  POT is considered a Canadian company, not sure that’s a fair representation of reality, since most of the management is based (day to day business) in Chicago, and a good portion of the company’s shares are owned by non-Canadian (some will say that in excess of 50%).  Moreover, it’s not like BHP can “move” the business.  Potash is mined, and something like 60% of the world’s supply is in Saskatchewan.

The Federal competition tribunal has ruled that it’s Ok for BHP to buy POT, however, there are two additional twists:  First, Steven Harper, Canada’s prime minister can over-rule the competition tribunal, second, mining is of provincial jurisdiction, in other words, the province can still veto the whole thing. 

Bottom line, BHP’s offer is around $140 per share, and the stock trades at $148 so that fight is not over yet.  In the past Canada has been very willing to see “national assets” sold on to foreigners, one reason is that Canadian companies have bet net buyers of foreign assets in the past.  The Alcan purchase by Rio Tinto has not been a great success, in fact Rio Tinto has been backing out of deals they made with the Province of Quebec, and so the province of Saskatchewan may well see similarity between the two events. 

On the other hand, Canada see’s itself as an open economy, the reality is that it is difficult to justify blocking the purchase for any other reason that pure nationalistic jingoistic reasons.

This should be interesting.

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