Investment
Canada’s new foreign investment scrutiny a risk for M&A in key sectors
TORONTO, Dec 14 (Reuters) – Canadian financial dealmakers are raising the alarm about Ottawa’s proposal to more closely scrutinize national security implications of foreign acquisitions of Canadian companies, warning that such interventions could deter foreign investments and slow impending deals in critical sectors.
Last week, Canada announced its biggest overhaul in more than a decade to Investment Canada Act, allowing the government to impose interim conditions to prevent buyers from accessing trade secrets, and to block investments that could compromise national security.
Lawyers and industry associations say such conditions could delay and add to the cost of dealmaking.
“There is a concern on how the proposed amendments affect timing of an acquisition,” said Sandy Walker, co-Chair of Competition and Foreign Investment Review group at law firm Dentons. “In some instances, there may be commercial or financial imperatives that require a transaction to close quickly.”
Canada added national security review to ICA in 2009 and since then only five out of the 87 deals were blocked outright, according to industry ministry annual reports. It is applied to 15 industries, ranging from mining, advanced materials and manufacturing to space technology, but the list is expected to be expanded next year, a government source told Reuters.
The increased scrutiny comes just as Canada’s large deposits of critical minerals needed for green transition are in hot demand.
“The level of investment you’re going to see is going to be unprecedented in the country,” Industry Minister Francois-Philippe Champagne told reporters on Wednesday when asked whether the new rules would inhibit investment.
Referring specifically to critical minerals, Champagne said allies “understand we take national security, economic security very seriously, and we’re going to protect our critical minerals because, as you know, these critical minerals will power the economy of the 21st century.”
DELISTING RISKS
Still, some M&A lawyers say the national security reviews can be invoked for companies that are registered in Canada but do not have physical operations in the country.
An example is that Canada ordered three Chinese investors to divest their investments in Canadian lithium companies in November. Some of these Canadian companies listed on the Toronto Stock Exchange do not run lithium mines in Canada, but abroad. The move is seen as the precursor to what could come under the amended ICA, lawyers argue.
“The jurisdictional threshold for a national security review is fairly low in that it appears to require very little connection to Canada,” said Huy Do, Co leader of the Competition, Marketing & Foreign Investment Group of law firm Fasken.
That could encourage some companies to seek delisting from Canada’s main stock exchanges.
“We are hearing arguments that some companies might want to de-list from the Toronto Stock Exchange and re-domicile in other jurisdictions,” said a lawyer from a Toronto based law firm who did not want to be quoted as the discussions are still private.
A TSX spokesperson declined to comment what individual issuers may do, but said it encourages the government to find ways to “supplement investment” in critical minerals and “make up for the potential shortfalls generated by these types of policy decisions.”
Pierre Gratton, President and CEO of the Mining Association of Canada, said while the industry is concerned about missing out on needed investments to explore for new mines, “we’re also not blind to the geopolitical environment in which we’re living.”
In the last year, the number of applications under review for foreign investments in mining, oil and gas, agriculture, forestry, fishing – dropped 11% to 37, according to industry ministry.
“So as long as what’s being cut off is replaced, we’ll be okay, Gratton added.
Reporting by Divya Rajagopal; Editing by David Gregorio
Our Standards: The Thomson Reuters Trust Principles.
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Investment
Tesla shares soar more than 14% as Trump win is seen boosting Elon Musk’s electric vehicle company
NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.
Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.
“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”
Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.
Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.
Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.
Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.
In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.
The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.
And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.
Tesla began selling the software, which is called “Full Self-Driving,” nine years ago. But there are doubts about its reliability.
The stock is now showing a 16.1% gain for the year after rising the past two days.
The Canadian Press. All rights reserved.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
Companies in this story: (TSX:GSPTSE, TSX:CADUSD)
The Canadian Press. All rights reserved.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
Companies in this story: (TSX:GSPTSE, TSX:CADUSD)
The Canadian Press. All rights reserved.
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