BHP Billiton failed to take over PotashCorp more than a year ago but questions about the unsuccessful deal and its impact on the future of foreign investment still linger.

When the deal was first announced, it didn't raise any red flags. The Competition Bureau provided an advanced ruling certificate and BHP offered significant undertakings to the Minister of Industry. Still, the deal was rejected by the Minister.

Sandy Walker, a competition and foreign investment review lawyer and partner at Fraser Milner Casgrain LLP (FMC), expresses surprise at the rejection in view of the extensive and unprecedented undertakings. "When I look at those undertakings - undertakings that I have never seen before, undertakings that go further than I've ever seen before - I say, 'That was turned down?'" says Sandy. "That's why there's a big question mark here, why people assume it was a political discussion.

"I think it's a widely held assumption that that decision was made because there were 13 Conservative seats out of a total of 14 in the province of Saskatchewan," and the minority Conservative government could topple.

There has been anxiety about whether the government's decision would affect foreign investment. Having just returned from a 10-day business trip to China, Sandy sheds some light on how Chinese investors perceive the Canadian climate for foreign investment post-Potash. While some Chinese investors expressed concern about how Chinese investment would be considered by the Canadian government, Sandy's response was that, "no proposed investment from a Chinese state-owned enterprise investment has been turned down". Moreover, she noted that, "there have only been two investments turned down in total and one was by a US company, the other by an Australian company."

Furthermore, Sandy believes the risk of a rejection of a foreign investment is lower now with a majority government: "There is less political risk now than there would have been a year ago when Potash went down."

Yet while there is no indication that the failed Potash deal is a trend, there are still questions that need answers. Above all, Sandy stresses the need for transparency. "There have been two rejections under the Act, and we haven't seen reasons for either of them. The government has taken particular positions, but we don't really know why. We need to know why they made those rejections. Foreign investors want predictability and certainty. They just want to know what they're dealing with."

For the full article, please read Sandra Rubin's Lexpert cover story "Investment Chill", February 2012

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