The federal government鈥檚 rejection of a major proposed takeover of a Canadian energy company has left doubts about whether this country is open for business when it comes to natural resources.
Late Friday, the government announced three minutes before midnight that it had rejected a $6-billion takeover offer for Progress Energy Resources by the Malaysian state-owned oil company Petronas.
The move shocked observers and sent Progress shares tumbling about nine per cent on the Toronto Stock Exchange to close at $19.64 Monday, while the TSX was down overall on the news.
While the government reserves the right to reject a foreign takeover offer if it deems the net benefit is not in the interests of Canadians, the announcement left onlookers scratching their heads.
鈥淭he problem with this one is that it sends a really difficult message to understand,鈥� said former Industry Minister John Manley in an appearance on Power Play. 鈥淭his one has left everyone shaking their heads.鈥�
Manley, who ruled on a number of takeover bids while he served in the Chretien government, said there were never any hard and fast rules about what constitutes a net benefit to Canadians.
鈥淭here was never a clearly articulated set of criteria,鈥� Manley said. 鈥淕enerally speaking it鈥檚 jobs, its R&D, it鈥檚 where will the head office be maintained.鈥�
But that said, the rationale for the government鈥檚 rejection of the Progress deal appears murky to onlookers.
鈥淚 think everyone in the market was surprised at the Progress deal being turned down at the last moment,鈥� said Gavin Graham, President of the Canadian Council of Chief Executives. 鈥淚t would certainly help if foreign investors knew what the net national benefit test is.鈥�
To that end, Prime Minister Stephen Harper promised Monday to reveal new guidelines on foreign takeovers, a move that will be closely watched as the government mulls a $15.1-billion proposal by the state-owned Chinese National Offshore Oil Company to acquire Nexen Energy.
Manley said if foreign companies are scared off from investing in Canadian resources, the economy could suffer,
鈥淭here鈥檚 this fallacy that鈥檚 gone abroad in the land that says when you allow investment, you鈥檝e sold the natural resource,鈥� said Manley, who added provinces still retain ownership over resources even when foreign-owned companies are awarded the rights to extract them. 鈥淲e need to extract these resources and we don鈥檛 have enough capital on our own to do it.鈥�
Petronas now has 30 day to amend its proposal and send it back to Ottawa for review.
With files from The Canadian Press
