* Canada to raise threshold to C$1 bln from $330 mln
* Changes will be brought in over four years
* Deals’ worth based on enterprise value, not book value
By David Ljunggren and Euan Rocha
OTTAWA/TORONTO, May 25 (Reuters) – Canada will boost the
threshold at which it will review proposed foreign takeovers of
Canadian companies, the industry minister said on Friday, but he
stopped short of fulfilling a government pledge to clarify the
criteria for approving them.
Sharpening its focus on the biggest deals, the government
will gradually raise the threshold for mandatory reviews to
proposed acquisitions with at least C$1 billion in enterprise
value. The current threshold is C$330 million ($320 million) in
asset value.
“I think C$1 billion is a reasonable number,” said Thomas
Caldwell, an outspoken investor who is chairman of Caldwell
Financial. “We want to have some kind of number that doesn’t
create an administrative nightmare.”
Industry Minister Christian Paradis said enterprise value
-the price offered for the equity adjusted for the assumption of
liabilities and cash assets – is a better measure of a deal’s
worth than the book value alone.
“Enterprise value better reflects the value of a business as
a going concern and the increasing importance of service and
knowledge-based industries,” Paridis said in the statement.
Paradis said the Conservative government was following
recommendations of a policy review panel that concluded in 2008
that the current way of reviewing proposed foreign investments
needed to be changed.
PRESSURE AFTER POTASH
Ottawa has come under pressure to explain the way it handles
foreign takeover bids since it surprised markets in late 2010 by
rejecting an attempt by Australian miner BHP Billiton Ltd
to buy fertilizer maker Potash Corp.
The Investment Canada Act requires that all foreign
takeovers over a certain size carry “a net benefit” to the
country, but the law fails to define the concept more
specifically, leaving investors uncertain.
Soon after the BHP decision, the government promised to
spell out what “net benefit” means in terms of a foreign
takeover, but it has yet to do so.
“I welcome the changes, but would have preferred if they had
said something about what ‘net benefit’ means and when they are
going to intervene,” said John Turner a Toronto-based lawyer who
heads Fasken Martineau’s global mining team.
The opposition Liberal Party was quick to take the
government to task for its omission.
“What Canadians and investors really want is to know what
constitutes a ‘net benefit’ to Canada,” the opposition Liberal
Party industry critic Geoff Regan said in a statement.
ENTERPRISE VALUE
The investment review threshold will initially rise from
C$330 million in asset value to C$600 million in enterprise
value. After two years, it will go up again to C$800 million,
and rise to C$1 billion two years later.
“Enterprise value is a better marker than asset value,” said
Turner, who has advised on a number of acquisitions. “It is a
better consideration of what the business is actually worth,
versus asset value where you can get into anomalies.”
A case in point was the auction of patents owned by bankrupt
telecom company Nortel Networks Corp in 2011. The
book value of the wireless patents was nominal, and it did not
merit a review under the asset value test.
In the event, a group that included Apple Inc,
Microsoft Corp and Research In Motion Ltd paid
$4.5 billion when the portfolio of 6,000 patents was auctioned.
