In a surprise move, the Canadian government provisionally rejected BHP’s $38.6 billion bid to buy the Canadian firm Potash. Potash, in the province of Saskatchewan, controls more than a fifth of the world’s reserves of potash, a key ingredient in fertilizer. After its initial review, the Canadian government was not convinced that the acquisition of Potash would provide a “net benefit” to Canadians when evaluated based on employment, production or investment targets. BHP now has 30 days to try to reverse the government’s initial ruling, but given the widespread domestic opposition to a Potash sale, BHP’s chances of a successful acquisition seem to be dimming. Canada has a reputation of being a free-trade champion, and since the nation eased foreign investment policies nearly two decades ago it has only twice before rejected a proposed foreign takeover. Canada’s rejection of BHP may have been unique because of domestic concerns about protection of valuable natural resources, but at least some are worried that Canada’s actions could be a sign of protectionist times ahead in the country.
QUESTIONS FOR DISCUSSION:
- Allowing foreign firms to either build or acquire domestic companies often has both positive and negative implications for a country. Examine the potential advantages and disadvantages to Canada of BHP’s possible acquisition of Potash. Why would the government of Canada believe that this proposed acquisition would not provide a “net benefit” to Canada?
- An acquisition can be a quick way for a company to obtain valuable strategic assets, but can also create integration difficulties. Evaluate the potential gains and difficulties BHP might encounter if it is able to successfully acquire Potash.
- Academic research has shown that a considerable number of acquisitions do not create value for the stockholders of the acquiring firm. Acquisitions are a common entry mode strategy, despite the fact the performance results for many acquisitions are poor. Evaluate how the fact that BHP’s Chief Executive, Marius Kloppers, has already “let two big deals slip from his grasp” might impact his actions following Canada’s initial rejection decision.
SOURCE: Dvorak, P., & Das, A. (2010, November 4). Canada slaps down BHP’s Potash bid. Wall Street Journal, pp. B1, B4. (Retrievable online at http://online.wsj.com/article/SB10001424052748703506904575592870406638644.html)
Related video clip available at: http://www.reuters.com/news/video/story?videoId=164017632