Canada’s new foreign investment scrutiny a risk for M&A in key sectors


By Divya Rajagopal and Steve Scherer

TORONTO (Reuters) – Canadian financial firms have sounded the alarm over Ottawa’s proposal for a closer scrutiny of the national security implications of a foreign takeover of a Canadian company, saying such intervention would not come from abroad. It warned it could deter investment and delay impending deals in key areas.

Last week, Canada announced the biggest overhaul of the Canadian Investment Law in over a decade. It allows governments to impose interim conditions to prevent buyers from accessing trade secrets and discourage investments that could threaten national security.

Lawyers and industry groups say such a situation could lead to transaction delays and increased costs.

Sandy Walker, co-chair of the competition and foreign investment review group at law firm Dentons, said: “Occasionally, there may be commercial or financial emergencies that require the expeditious completion of a transaction.”

Canada added national security reviews to the ICA in 2009, and since then, only five out of 87 transactions have been blocked outright, according to the Industry Department’s annual report. This applies to 15 industries, from mining, advanced materials and manufacturing to space technology, but the list will be expanded next year, government sources told Reuters.

Increased scrutiny is taking place as is demand for large Canadian deposits of critical minerals required for environmental migration.

Industry Minister François-Philippe Champagne told reporters on Wednesday, when asked whether the new rules would deter investment, he said: “The level of investment you are about to see will be unprecedented in this country. Let’s go,” he said.

Referring to minerals of particular importance, Champagne said the allies “understand that we take national security, economic security very seriously and, as you know, these important We intend to protect important minerals because they power the economy of the 21st century.”

Risk of delisting

Still, some M&A lawyers say they can conduct national security reviews on companies that are registered in Canada but have no physical operations in the country.

Canada, for example, ordered three Chinese investors to sell their investments in Canadian lithium companies in November. Some of these Canadian companies, listed on the Toronto Stock Exchange, operate lithium mines abroad rather than within Canada. The move is seen as a harbinger of what may be done under the ICA, the lawyers argue.

Hugh Do, co-leader of the competition, marketing and foreign investment group at law firm Husken, said, “The jurisdictional threshold for national security review is fairly low in that it requires few ties to Canada.” said.

This could lead some companies to seek delisting from major Canadian stock exchanges.

An attorney at the Toronto-based law firm said, “We’ve heard arguments that some companies may want to delist from the Toronto Stock Exchange and move to other jurisdictions. ‘ said. .

A spokesperson for TSX declined to comment on what individual issuers might do, but said the government will find ways to “compensate for investments” in key minerals and “make policy decisions of this kind.” He said he encouraged them to find ways to compensate for potential shortfalls caused by

Pierre Gratton, president and CEO of the Canadian Mining Association, said the industry was concerned about missing out on the investment needed to explore new mines, but said, “The geopolitical situation in which we live We are not blind to the environment,” he said.

Last year, the number of pending applications for foreign investment in mining, oil and gas, agriculture, forestry and fisheries fell 11% to 37, according to the Ministry of Industry.

“So as long as what’s being cut off is replaced, we’re fine,” Gratton added.



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