January 04, 2006
Merger and acquisition activity has been clicking along at a record pace over the last year. But to date, deal makers have been surprised by the federal government's lack of response to foreign takeovers, and it's not clear whether Ottawa will remain silent on these types of deals.
In its memo, M&A Trends of 2005 – Our Top 10 List, Torys' M&A team says it expects takeovers to continue at a red-hot pace, and calls for more hostile activity. But recent months have seen “a resurgence of protectionist attitudes in the United States and Canada towards foreign acquirers.”
In the U.S. market, protectionist hackles were raised in the battle for Unocal, where a Chinese company was outbid by Chevron. In Canada, the attitude shift was subtler. Torys points out that when the government fell, proposed amendments to the Investment Canada Act died with it. The measures had been introduced after China's Minmetals sniffed around Noranda. Says Torys' memo: “Proposed amendments would allow transactions to be reviewed and rejected, regardless of their size, if they could be injurious to ‘national security' (which is not defined in the proposed legislation but seems intended to go beyond, for example, the defence industry).”
The next federal government could face the question of whether to protect or sell off the biggest businesses in the land. It is likely that Ottawa will opt to block these deals, especially those in the media, telecom, banking and airlines industries.