Canada has blocked BHP Billiton's $39bn bid for PotashCorp on grounds that the deal is not in the country's interest, appeasing provincial politicians but potentially at the expense of international standing.

Tony Clement, Canada's industry minister, said that the bid by the mining giant for Saskatchewan-based PotashCorp, the biggest takeover launched so far this year, failed the test of being a "net benefit" to the country

"In Canada, our natural resources are an important economic driver," he said.

"I have come to the conclusion that BHP Billiton does not present a likely net benefit to Canada."

BHP, which has 30 days to make any additional representations, declined to comment.

Provincial objections

The decision represents only the second time the country has invoked the Investment Canada Act to block a deal, the first being in May 2008 when US defence group Alliant Techsystems was barred from buying MDA's satellite business.

Indeed, many investors had expected Anglo-Australian BHP win approval for its bid - even if federal officials attached some hefty conditions, following strong lobbying against the deal by Saskatchewan provincial authorities.

The province claimed that a takeover by BHP - which talked of removing PotashCorp from the Canpotex potash export cartel, and so opening up the market for the fertilizer and potentially depressing prices - would cost it up to Can$6bn in lost taxes and royalties over 10 years, besides losing it jobs and strategic influence over the nutrient.

It also follows some controversies over foreign investment in Canada, including allegations that US Steel failed to live up to investment commitments, and a wage strike at Brazil's Vale-Inco business.

Nonetheless, it risks Canada being downgraded for foreign investment, potentially raising financing costs, besides damaging Toronto's growing status as a financial centre.

Share reaction

The immediate reaction was to send PotashCorp's New York-listed shares down 4% in after-the-bell trading.

However, many analysts have forecast that bid rejection would not, ultimately, hit the stock too hard, given the strong performance of other fertilizer group shares, for which hopes have been lifted by the jump in crop prices.


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