As a general rule, there is no particular reason to treat a foreign takeover any differently than a domestic one. When Acme Ballbearings of Guelph, Ont., makes a bid for Ballbearings R Us of Brandon, Man., no government agency is assigned to ponder whether the transaction is of "net benefit" to Canada.
It is sufficient, rather, that it is of net benefit to both parties.
Only when the buyer comes from outside our borders does the state feel entitled to step in on behalf of a variety of interests with little in common save that none of them are parties to the transaction. Thus, the buyer is obliged to employ this number of workers, to buy from this supplier and so on, all in the name of ensuring the transaction is of "net benefit," not to the buyer or the seller, but to Canada.
And so far as this costs the buyer, it also costs the seller, who is deprived of the full price of his shares. This uncompensated expropriation of a part of his assets is all in the name of preserving Canadian "ownership."
The process, in short, is entirely arbitrary. No economic logic compels politicians to discriminate between foreign and domestic takeovers. They do it for the same reason people in politics do most things: because they can. The sooner we take that power away from them - for example, by reversing the onus, converting the "net benefit" rule to one of "net harm" - the better.
That's the general rule. Is China National Offshore Oil Company's proposed takeover of Nexen an exception? A lot of people seem to think so: because it involves oil, because CNOOC is state-owned, because China does not grant the same rights to Canadian investors, because, well, it's China. Even people who might ordinarily look askance at foreignownership controls are prepared to justify them in this case.
The least important factor is the first. There is no intrinsic significance to oil, whatever impressive-sounding labels ("strategic resource") might be slapped on it. In any event, what CNOOC is buying is not the oil, but the right to extract it. Until it does, the oil remains under the ground and under Crown ownership. To drill, CNOOC must pay royalties to the province, as it must pay taxes on its profits, the same as any other company. And, like any other company, it must obey Canadian laws, at least so far as its Canadian operations are concerned.
Yes, oil is fetching a high price these days: the list of companies that might be next in line after Nexen as the target of a foreign buyer is a long one. But in every case, the meat of the argument is the same: If their Canadian owners did not think the price was at least equal to the discounted stream of earnings they could expect on their shares - or if they did not think they could earn a greater return by reinvesting the proceeds elsewhere - they would not sell.
That CNOOC is state-owned sounds like a significant objection, until you try to work out why. State ownership is often associated with inefficiency and politicization - but if so, that's a problem for China's taxpayers, not ours. It's entirely possible, for example, that CNOOC is overpaying for Nexen - a premium of 60 per cent over the market price - with the help of its state backers. How is it not in the national interest to relieve them of their money?
I doubt we'd be hearing so much about state ownership if it were Norway's Statoil that was buying Nexen. Which is fair enough, up to a point: It's legitimate, given China's track record, to want to be sure that our laws would be obeyed, notably with respect to environmental and labour standards, and to insist that our regulators have the access they need to enforce them. I see no reason to think that is impossible.
Still, if that's where we're drawing the line now - no longer opposed to foreign takeovers as such, but only to those emanating from repressive regimes - that's progress in itself. The prime minister has promised a broader redrafting of foreign-investment rules in the wake of the Nexen decision. If rejecting or modifying CNOOC's bid provided cover for a general opening of our borders, that would be a pretty good trade.
