Canada's takeover-friendly securities laws have helped make the country the easiest in the world for foreign acquirers, according to a groundbreaking new study that shows Canadians are the world's biggest net sellers of corporate assets in terms of the nation's market size.
An 86-page report, prepared by Secor Consulting for the federally-appointed Competition Policy Review Panel, concludes Canada is the easiest country in the world for foreigners to take over domestic companies.
The review, a copy of which was obtained by The Globe and Mail, says only three countries that were active in global mergers and acquisitions since 2000 were significant net sellers of their companies: Canada, the United States and Britain.
And relative to the size of its domestic capital market, Canada is the biggest of the three, with the value of completed acquisitions since 2000 equalling 12 per cent of the country's total stock market capitalization, compared with 10.7 per cent in Britain and 2.1 per cent in the United States.
“Canada has been selling significantly more than buying in recent years,” the report states.
“Without looking at this on a global basis, some people have jumped to the conclusion that Canada is a small economy, so of course we're going to be bought out as the globe restructures,” Secor chairman Ken Smith said in an interview.
“But we've looked at this phenomenon across all the major countries participating in the latest M&A cycle and there are only three countries that are selling, and they are not small countries.”
The Secor review looks at all cross-border deals since 2000 that led to a change of control of the companies involved. It concludes Canada slipped into a net deficit position between inbound takeovers and outbound purchases starting in 2005, and that the deal gap grew to a total of $24-billion (U.S.) by 2007.
Excluding purchases made by companies in protected industries – which cannot be acquired because they are subject to foreign takeover restrictions – the study concludes there was a deficit of $80-billion in the value of all Canadian companies purchased by foreigners versus the value of foreign companies purchased by Canadians.
Countries like the Netherlands, Spain, Germany, France and Australia have been net buyers, the report says.
Secor's 86-page review has been submitted to the federally appointed Competition Policy Review Panel, led by former BCE Inc. chief executive officer Lynton (Red) Wilson. It is expected to report by June on a broad array of factors affecting Canada's global competitiveness, including competition rules and foreign investment policies.
Mr. Smith said one significant difference between Canada and other countries – including the U.S. – is the limited freedom of boards of directors to simply say “no” to hostile takeover bids.
There is no legal precedent for saying “no” in Canada, where regulations require boards to defer to shareholders in deciding on takeover bids. U.S. boards, by comparison, have more power to be the main decision makers on takeover deals. And European countries provide far more barriers to unwanted takeovers, the report says.
As well, Canadian regulators only permit the use of poison pills to delay takeover bids – allowing boards of directors time to canvass for other buyers – while U.S. companies can more often directly block hostile bids with their poison pills.
Federal competition rules, Mr. Smith argued, have also made foreign takeovers easier than domestic mergers. That's because a foreign buyer is unlikely to trip over competition laws by controlling too large a percentage of a market, while domestic buyers run into issues of excessive control.
The report also examines the relatively small size of Canada's largest companies compared with other countries of an equal or smaller size, saying a lack of clout limits their ability for large global takeovers.
It recommends phasing out ownership limits to allow more domestic companies in protected industries to merge, helping them become bigger global players. It also urges the government to negotiate more free-trade deals with other countries and recommends lowering corporate taxes to make Canadian companies more competitive globally.
http://www.reportonbusiness.com/servlet/story/RTGAM.20080227.wrhollow27/BNStory/Business/
Stumble It!
The world's food supply, the most important sector for humanity, is now under the control of a few multinationals. 10 cents of every dollar spent on food in the USA, ends up in the pockets of the Philip Morris tobacco corporation. The situation is about the same here in Canada with our foods contaminated by hundreds of chemicals and genetic modification by these crooks, while the government looks on smiling and waiting for directorships in these "free enterprise" conglomerates.
Ed Deak.