Steelworkers on the Potash Takeover

Last week, I was in Halifax at USW’s Ontario-Atlantic district conference. It was a great conference in a great city.

But having so many key people out of the office limited our response to BHP Billiton’s bid for the Potash Corporation of Saskatchewan. (Next time BHP launches a hostile takeover, it should better coordinate the timing with interested unions.)

Nevertheless, we got out a press release throwing down the gauntlet for BHP to demonstrate how the proposed acquisition would benefit Canadians. CEP, the second-largest potash union, has also issued a release. Today, we have the following op-ed in The Financial Post (page FP 11):

BHP Takeover of Potash Could Squeeze Workers

Last week’s hostile takeover bid for the Potash Corporation of Saskatchewan (PCS) should raise a red flag for Canadians. However, it is an opportunity for a national debate on the future of Canada’s potash industry, the continuing onslaught of foreign takeovers of Canada’s resources and industries, and the effectiveness of the Investment Canada Act.

PCS is simply the most recent Canadian economic jewel swept up in the relentless surge of foreign takeovers: Stelco, Xstrata, Inco, to name but a few. Canada no longer has a single major steel producer. In 2006 alone, foreign ownership of Canadian mining leapt to 48% from 12%.

PCS began as a Crown corporation, wholly owned by the people of Saskatchewan. The 1989 legislation privatizing the company prevented non-residents of Canada from owning more than 45% of the shares. In 1994, the Saskatchewan government removed this restriction. Although PCS remained a Canadian company, non-residents held just over half of its shares at the end of last year.

BHP’s bid would bring PCS wholly under foreign ownership. There are numerous reasons for Saskatchewan communities to be concerned about its bid, and governments’ unwillingness to protect Canadians’ interests.

BHP has mused about leaving Canpotex, the agency that has marketed Canada’s potash offshore for four decades. BHP may have enough clout to go it alone in world markets. But removing PCS sales from Canpotex would severely undermine that agency’s marketing and pricing power, to the detriment of Canada’s smaller potash producers: Agrium and Mosaic. With less capacity to negotiate high and stable prices for all Saskatchewan potash mines, provincial royalty revenues could be lower and more volatile.

Canadian workers and governments would also have less bargaining power in negotiating with a global mining giant. Currently, PCS generates two-thirds of its profits from unionized mines in Saskatchewan. As a result, Saskatchewan workers, the provincial government and the federal government have some leverage in negotiating the wages, royalties and taxes paid by PCS.

If the proposed $38-billion-plus takeover occurs, Canadian mines would account for more like one-tenth of BHP’s profits. In the future, BHP could credibly threaten to close Canadian operations to extract concessions from workers and/or governments.

This prospect is much like the unfortunate situation with Vale’s acquisition of Inco, which led to a strike in Sudbury that lasted 100 days longer than the longest Inco strike. Our union still remains on strike against Vale at Voisey’s Bay in Labrador, with the company employing replacement workers and refusing to accept the same settlement that was reached in Sudbury.

Unfortunately, Vale has been cited as another possible purchaser of PCS.

Recognizing BHP’s bargaining power after a takeover, Canadians should drive a hard bargain now in reviewing its bid. The Investment Canada Act gives the federal government extensive power to reject proposed takeovers that would not provide a “net benefit” to Canada. And a deal’s “net benefit” should be understood as more than just what windfall current shareholders might earn as competing bidders drive up stock prices.

Unfortunately, repeated Canadian governments have failed to effectively use this authority. Most foreign takeovers are rubber stamped. All are behind closed doors. Of more than 1,600 proposed acquisitions reviewed under the Investment Canada Act since 1985, only one was rejected. Of all the foreign takeovers, the government has only ever taken one foreign company to court for violating commitments under the Act.

Applications to acquire PCS or other major Canadian enterprises should be subject to thorough reviews, including meaningful opportunities for employees, their unions and the wider community to participate in the process. If such a review approved BHP’s takeover, it might be made conditional on BHP at least maintaining certain levels of employment in Canada and conducting its offshore potash sales through Canpotex.

Such commitments made under the Investment Canada Act should be public so that Canadians know whether or not they are being met and enforced. A major problem with Vale is that we still do not know precisely what promises were made when it bought Inco. As a result, the public has no means to ensure Vale lives up to any commitments it made behind closed doors. Let’s not let the same happen again.

The prospective foreign takeover of PCS is a major challenge for Canada. But it is also an opportunity to improve our policies for reviewing foreign takeovers and protecting Canadian interests.

Ken Neumann is National Director for Canada of the United Steelworkers union, which represents Canadian potash miners employed by PCS, Agrium and Mosaic.