Monday, March 12, 2012

For Viterra takeover, the Potash precedent a cautionary one

Globe and Mail
March 12, 2012

In Saskatchewan, taking over a big company is never straightforward.

The potential foreign takeover of grain-handling giant Viterra Inc.  may well whip up the same kind of prairie populist sentiment that ensnared the would-be buyer of Potash Corp. of Saskatchewan in a political trap two years ago.

Viterra is one of the big three publicly traded companies based Saskatchewan, along with Cameco Corp. and Potash Corp.

Viterra, like Potash Corp., has spirited many of its head office jobs out of the province while keeping a headquarters there in name only. Yet it remains tied deeply into the province’s fabric and history. The company’s roots are in the farmer-owned Saskatchewan Wheat Pool. In scores of small towns, including the one I grew up in, the grain elevators of Viterra and its rivals offer the only hint of a skyline.

The hostile takeover bid for Potash Corp. by Australia’s BHP Billiton led otherwise free-market Saskatchewan Premier Brad Wall to turn into a protectionist, driven by populists. The government’s first statements signalled it would respect market forces. But within a few weeks, even his conservative base was urging him to fight the deal.

Mr. Wall’s rhetoric shifted powerfully against the loss of a so-called “strategic asset,” and he pushed the federal Conservative government in Ottawa to say no. It did, no doubt in no small part over fears of losing a lot of Saskatchewan seats from what was then a minority government. In the bargain, by helping Potash Corp.’s defence, Mr. Wall engineered a return to Saskatchewan of many of the mining company’s head office jobs.

Viterra presents a similar dilemma for the province’s popular Premier, for whom the Potash fight was a defining moment on the national stage. He risks once again being caught between his desire to be a free-marketer and a significant chunk of the population that does not want to lose one of the province’s few large corporate citizens.

Already, opposition politicians in Ottawa are calling on the government to block a sale. Anyone for a pool on how long it takes the phrase “strategic asset” to pop in this debate? Meantime, would-be bidders are crafting their strategies for Investment Canada approval. A smart acquirer would seek some Canadian content for its deal, perhaps by doing a group deal with a Canadian party involved.

The situation is further complicated by the political punch-up over the Canadian Wheat Board. There’s a view among analysts that the impetus for a Viterra takeover is likely the removal of the board’s stranglehold on marketing Canadian grain for export, which opens up opportunities for Viterra.

Mr. Wall backs the federal Conservatives’ decision to end the Wheat Board’s single-buyer system. Among farmers, the issue is extremely contentious. Add Viterra’s fate to the mix, and it all gets even messier.

The same is true next door in Manitoba, home to the head office of the Wheat Board. Viterra also owns what used to be the Manitoba Pool Elevators, and the province’s New Democratic Party government opposed the federal government’s move to end the Wheat Board’s hold in the export grain market.

It’s only in Alberta, where many of the top executives of Viterra now work, that the deal is unlikely to be controversial. The province is fiercely free-market, and Viterra is just one of a number of big companies in Calgary. If Viterra’s top executives don’t want to sell, they may regret choosing Calgary as a second home.

None of this means Viterra couldn’t be sold to a foreign buyer, or even that it shouldn’t. But the Wheat Board and Potash Corp. provide powerful ammunition to opponents of the sale.

If a deal materializes, the federal Conservatives risk ending up in a bind. After having blocked the Potash takeover, and another for MacDonald Dettwiler’s space business in 2008, the Harper government would be loath to step in front of another deal for fear of looking protectionist – especially after Viterra has been allowed to gobble up much of Australia’s grain handling sector.

So far, the Wall government seems inclined to stay low-key, as there’s no sense yet of a groundswell in Saskatchewan against a sale. Ottawa, too, is sending warm signals. Would-be buyers of Viterra have an advantage over BHP: the government of Prime Minister Stephen Harper now has a majority and doesn’t have to worry about holding onto every last seat in an election that could come at any time.

However, the Potash Corp. story is a cautionary one. In that case too, things started quietly. They sure didn’t stay that way.

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