When “Yes” is Not an Acceptable Answer

Canada suffers from the same aches and pains as most developed countries–bureaucratic anomalies! One such group is collected in a government agency called Investment Canada, which recently killed every hope Inco had of a takeover of Falconbridge. How? Simply, Investment Canada is in charge of reviewing foreign investments in the country. And, it has determined that Anglo- Swiss Xstrata’s takeover of Canada’s Falconbridge is more beneficial to Canada than a takeover by Toronto-based Inco.

How exactly is a foreigner’s takeover of Falconbridge is better for Canada than a takeover of a domestic player by a domestic player? In true bureaucratic fashion, the answer to that question is not easily retrieved.

Canada is proud to be labeled as the developed world’s most open economy. We welcome immigrants just as much as we welcome foreign investments. But, the key to keeping a good thing, well, good, is not to have too much of it.

In other developed countries, you will often hear about antitrust reviews. But, not so in Canada! Although Investment Canada is supposed to play a crucial role in all foreign takeovers exceeding $265.0 million, we are yet to hear about the agency actually rejecting a single proposal. I cannot think that such blind trust to anything foreign is good for domestic business in the long run.

So, how did Investment Canada explain giving green light to Xstrata? Well, the agency has Xstrata’s promise that its nickel business will be run out of Canada. There is also a promise that the surviving entity’s Chief Operating Officer will be a Canadian and that at least one board member of Xstrata will also be a Canadian. But, this is a far cry from changing headquarters and transferring business to another country, as was the case when Mittal Steel acquired Luxembourg-based Arcelor.

Xstrata promises sure sound just dandy–if you’re eight years old and, in your dreams, you convinced your parents to give you only Twinkies for breakfast. The fact remains that once Xstrata finalizes the takeover of Falconbridge, instead of having the world’s major nickel producer based in Canada, we will lose an important player in the mining sector, and, more importantly, a significant listing on the Toronto Stock Exchange. The way it looks to me, Canada got shortchanged by its bureaucrats once again.

By relinquishing Falconbridge to Xstrata, Canada has lost, yet again, an opportunity to have a large corporation, by international standards, headquartered here, at home. What is also obvious, perhaps to everyone except Investment Canada, is that Canada does not have a coherent industrial policy makers or enforcers.

In spite of having wonderful resources, Canada is still not an “industrial destination” of anyone’s choice. And, after Investment Canada’s decision to accept Xstrata’s proposal, I don’t think this bureaucratic body is capable of leading our industrial sector in any other direction, but right off the cliff.