Canadian invasion

Forget hollowing out, our firms are the new corporate marauders

Reuters/ Getty Images/ AP

As the loonie surged last month, Viterra, a Regina-based grain handler, did what many Canadians have done lately. It went shopping south of the border. In a $240-million deal, the company scooped up Dakota Growers, America’s third-largest pasta producer. But if the acquisition was seen as yet another example of Canada flexing its newly acquired corporate muscle in the world, to some North Dakotans it was nothing short of a travesty. “It’s like recognizing a bad dream becoming reality,” says Bill Patrie, who helped start Dakota Growers as a farmers’ co-op in the early 1990s. Now he worries the pasta plant, which employees about 300 workers, may face cuts, or that cheap wheat will be shipped in from Canada instead. “The starting point was to add value to durum by the people who grew it. Now under Canadian ownership the objective will just be to buy the cheapest durum possible.”

For the last decade, Canadians railed against rapacious foreigners as they seized our natural resources and grabbed up our corporate head offices. The hollowing out of Canada became a national preoccupation as famous names like Molson, Four Seasons, Hudson’s Bay Company and Alcan fell under foreign control. Now, with the strong dollar and Canada’s relatively sound economy, a remarkable shift is under way. Suddenly, Canadians seem to be the ones primed to do all of the buying. “As industries globalize you’re eventually either a buyer or a seller, and for a decade Canada has, by and large, been a seller,” says Ken Smith, a partner at strategic consulting firm Secor Group. “We’ve never been in a better position to move over to the buy side. There are opportunities not just in the U.S. but in Europe and everywhere where the financial crisis has done some damage.”

But as Canadian companies shift from targets to acquirers, they can expect to find themselves on the defensive. If several recent deals are any indication, Canadians are earning a reputation as the new foreign marauders, hollowing out other countries.

That was evident last fall when Magma Energy, a small Vancouver firm, snapped up one-third of the shares in HS Orka, a geothermal energy company in Iceland, for $25 million. (Magma has since upped its stake to 43 per cent.) If Iceland’s explosive Eyjafjallajökull volcano shows the power that lured Magma to the tiny island in the first place, the eruption of anger that met the deal has been equally volatile. At a government meeting to approve the sale last September, furious protesters called Icelandic officials “traitors” for selling out to the Canadians. Others accuse Magma of being an opportunist and a predator, striking Iceland while the country reels from the near total collapse of its economy. In an email, Alda Sigmundsdóttir, a writer and blogger in Iceland, told Maclean’s tempers are still high. “Many people are very angry that it went through and very fearful that something similar may happen again, i.e., that a foreign entity may come in through the back door, as it were, and take control of Iceland’s resources.”

Magma CEO Ross Beaty was not available for an interview for this story. In Icelandic media he has fired back, calling criticism over the deal “ignorance and complete nonsense,” and saying Magma plans to invest in Iceland for the long term. As an apparent goodwill gesture, Magma sponsored Iceland’s athletes at the Vancouver Olympics.

It’s hard to ignore the similarities between the fears expressed by many Icelanders and the outcry when foreign corporations gobble up Canadian mining and energy companies. In 2007, as a spate of foreign takeovers shook the country, NDP Leader Jack Layton said a national crisis was unfolding. “Canada’s slipping away,” he said. “Foreign-based companies are gaining more control over our cultural industries, energy reserves and natural resources.” It wasn’t a view held solely by traditional opponents of business, either. “It’s a disaster for Canada,” Doug Davis, a money manager at Davis-Rea in Toronto, said at the time. “Anything and everything is for sale.”

In some ways the angst was misplaced. Canadian companies have consistently done more buying outside our borders than vice versa. Even amid all the foreign takeovers of 2006 and 2007, when ownership of companies like the Bay, Stelco and Cognos went abroad, Canadians signed three to four times as many foreign takeover deals, according to data from Toronto investment firm Crosbie & Co. It’s just that many of those acquisitions were smaller in scale. When it came to deals worth more than $1 billion—the type that grab headlines—Canadians were overwhelmingly sellers. In the last decade, deals where Canadian companies were the target of international buyers trumped those where Canadians went cross-border shopping by US$170 billion, according to Smith. In the global trade of corporate assets, that made Canada the top seller relative to the size of our economy.

The move last week by state-owned Sinopec of China to buy a stake in oil sands producer Syncrude rekindled those concerns, even if the Chinese company bought its position from another foreign entity, Houston-based ConocoPhillips. Yet the flow of deals has turned in Canada’s favour of late. Last year, Canadian firms bought more assets abroad than they sold for the first time since 2004. Meanwhile, a report by the New York law firm Paul, Weiss, Rifkind, Wharton & Garrison showed the value of Canadian cross-border deals jumped by 94 per cent last year, to US$37.1 billion, the largest proportional gain of any of the 10 countries the firm looked at, including the U.S., Britain and China.

The backlash against marauding Canadians is by no means new. In 2007, when TD Bank bought New Jersey-based Commerce Bancorp for $8.5 billion, the deal faced criticism from American commentators worried about the loss of domestic control over the economy. (Just last week TD added to its U.S. haul when it acquired some of the assets of three failed bank chains in Florida.) That uproar led Prime Minister Stephen Harper to joke about the irony of Americans accusing Canadians of “hollowing out” their economy. Increasingly, that is exactly how many in the U.S. see takeovers by foreign companies, be they Chinese, Russian or Canadian.

Last week, Alimentation Couche-Tard launched a hostile $1.9-billion takeover of Casey’s General Stores, an Iowa company with 1,500 stores across the American Midwest. Even though this is the 18th U.S. deal for the Laval, Que.-based chain, this transaction seems to have touched a particularly raw nerve. In the comments section of the Des Moines Register, one reader wrote, “It looks like just another step in the direction this country seems to be headed—a takeover of an American company by foreign interests. One day in the near future, if this trend continues, foreigners will control and run the whole country.” Meanwhile, on the Facebook page for Casey’s, a fan echoed that sentiment: “Keep an American born and raised business completely AMERICAN!!”

But if Americans are sensitive about foreigners buying their companies, in Britain the issue has become one of the hottest topics of the upcoming election. A flurry of high-profile takeovers, such as the one that saw America’s Kraft Foods gobble British candy maker Cadbury for nearly US$20 billion in January, have sparked calls for action. The Labour Party, under Prime Minister Gordon Brown, has responded by promising to introduce a “Cadbury law,” a series of measures to make it tougher for foreigners to gain control of U.K. companies.

That was the environment the Ontario Teachers’ Pension Plan waded into at the end of March when it inked a deal to buy the United Kingdom’s national lottery operator, Camelot Group, for $590 million. In customary huge type, the country’s tabloid press wailed about the loss of yet another British company. “Canadians to buy our national lottery,” the Daily Express reported, noting the pension fund beat out an “all-star British cast” of buyers lined up by a domestic private equity firm. “[The deal] is likely to cause public anger as another prized British asset is sold to an overseas investor.”

Deborah Allan, head of communications at Teachers’, acknowledged the pension fund has yet to get regulatory approval for the deal, though she doesn’t expect problems. “They don’t know us as well as they know a local company, but I would say the concerns about it being in the hands of a non-U.K. organization would be unfounded, because it was already in the hands of a non-U.K. consortium.” Indeed, Camelot’s existing ownership consortium includes companies from Japan and France. And Allan says Teachers’ plans to expand Camelot, not squeeze it. “We’re going to keep it and grow it,” she says. “We have a lot of money for growth.”

It’s unclear whether such assurances will calm fears. The fact is many countries and companies are wallowing in debt, and the most straightforward way to deal with that problem is to sell assets. As such, many countries will see big-name businesses get taken over in the coming years. And much more than in the past, Canadians will be the ones signing the cheques.

Even ignoring the recent financial crisis, cross-border takeovers have been on the rise everywhere for years. “Everybody is being hollowed out—Canada is, but so is everyone else,” says Colin Walker, a managing director at Crosbie. “It’s part of globalization, part of the push to larger scale.” So if there’s any consolation the next time a big Canadian corporation gets taken over, just know that someone, somewhere is griping about those voracious, plundering Canucks.

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