Former Alcan CEO urges Ottawa to negotiate but not block BHP bid for Potash

MONTREAL - The architect of Canada's last big mining merger says government needs to confront growing public skepticism over mega-deals by ensuring BHP Billiton lives up to its commitments if it successfully acquires PotashCorp.

"I think the government should negotiate fairly tough on it but I do not think that they have grounds to prohibit it," former Alcan CEO Dick Evans said in an interview.

The American-born businessman — who guided Montreal-based Alcan through a US$38-billion takeover by Rio Tinto in 2007 — said that transaction resulted in "a pretty tightly negotiated set of conditions" including capital investments, a charitable foundation and preservation of Montreal as headquarters of the international mining giant's aluminum division.

And while its capital spending has slowed due to the recession, Rio Tinto has lived up to its commitments, although it used a disaster clause in a continuity agreement with the Quebec government to shut its Beauharnois smelter.

"I don't think （the Rio Tinto-Alcan deal） damaged Canada's interests at all and I think it's been a modest positive," Evans said.

The former CEO added that he sees many similarities and key differences between the Alcan and Potash （TSX:POT） blockbuster mining deals.

Both targets are low-cost producers and global leaders in their fields.

But public confidence in mega-deals has deteriorated over the past three years as several buyers have failed to live up to their commitments to protect jobs, Evans said, pointing to U.S. Steel's purchase of Stelco and Vale's acquisition of Inco.

U.S. Steel used the cover of the global recession to partially shut two Ontario mills and break employment and production promises made when it acquired Inco in 2007. Ottawa has gone to court to impose penalties on the company for failing to live up to its promises under the Investment Canada Act, but the case could drag on for years.

And Vale's workers in Sudbury, Ont., emerged this summer from a bitter year-long strike, while its employees in Voisey's Bay, N.L., are still on strike after nearly 15 months.

Instead of blocking the PotashCorp transaction, Ottawa should negotiate tough and enforceable terms for the sale, with stiff penalties if they fall short, he said.

University of Calgary professor Jack Mintz agreed, saying there is more outflow of Canadian capital than outsiders looking to invest in Canada.

He said there's no proof that the transaction would not be of net benefit to Canada.

Ultimately, he said Saskatchewan's priority should be to maximize royalties and taxes.

"I think the key element for Saskatchewan is to make sure that they've got a partner that's going to run the industry well," he said from Calgary.

"That's why I think it's very hard for the federal government to use the Investment Canada Act to block the takeover without some evidence that somehow this is a really bad deal for the country."

The former head of the C.D. Howe Institute said Saskatchewan could ultimately be shooting itself in the foot by opposing the sale because the involvement of one of the world's largest mining companies would improve PotashCorp's productivity and drive higher provincial royalties.

He said a Statistics Canada study a few years ago concluded that foreign-controlled companies were more productive, spent more on research and development and paid better wages than their Canadian counterparts.

But Ken Neumann, national director of the United Steelworkers union, said Ottawa should block the takeover because such large acquisitions have turned out badly for Canada and its workers in the past.

"These companies are … giving the nod and wink to the government and telling them what they want to hear," Neumann said.

He said Ottawa needs to overhaul the Investment Canada Act to clearly define net benefit — a key test that any large foreign takeover of a Canadian company must meet — and ensure commitments by companies are transparent.

"You've got to fix the legislation that really defines what you mean by net benefit for Canada because U.S. Steel and Vale clearly have not been a net benefit for Canada," he said.