Reuters reported Wednesday that Samsung (KRX:005930) was once again in talks to purchase Blackberry (NASDAQ: BBRY) for a sum of $7.5 billion. Samsung’s interest in Blackberry isn’t anything new, as reports of talks between the two companies date back to 2012. While this report was met with swift denial from both sides, even if a deal was approved by shareholders of Blackberry Samsung would face one more hurdle: the Investment Canada Act.
Foreign takeovers of a Canadian firm are regulated by the Investment Canada Act. Under the Investment Canada Act, any large takeover of a Canadian firm by a foreign organization must pass a number of tests that satisfy Canada’s Minister of Industry. The most notable test for an acquisition this large (the tests kick in if the deal is for a company with assets over $1 billion) is that the deal is a “net benefit” to Canada.
The exact nature of what constitutes being a “net benefit” to Canada isn’t clearly defined. However, the ruling government in Canada has used the act twice to squash takeover deals of Canadian firms. One was a 2008 takeover of Vancouver-based defence and space contractor MacDonald Dettwiler and Associates (TSE: MDA), and again in November 2010 to block the takeover of PotashCorp (NYSE: POT) by Australian firm BHP Billiton (NYSE: BHP). However in 2012, Calgary-based Nexen (NYSE NXY) received approval to sell part of itself to China National Offshore Oil Corporation (NYSE: CEO) in December of that year.
For its part, the Canadian government has not offered much guidance on the issue.
Canada’s Prime Minister, Stephen Harper, is quoted as saying on the topic:“We all know [RIM] is an important Canadian company.”
Canada’s current Industry Minister, James Moore, hasn’t addressed the issue but former Minister Christian Paradis said any takeover would not be formally speculated about in the press but decided on behind closed doors under careful scrutiny.
“It’s speculation and each decision on each case is based on its own merit, so it would premature for me to speculate on any of these kinds of cases,” he said to Reuters in January 2013. “So if something was going to occur, then we would have to determine if it was reviewable or not, depending on the threshold (of the value of the transaction), and then we go with the net-benefit test.”
The net benefit of investment
Of course it could be argued that while Blackberry is a large Canadian company, it doesn’t hold the strategic value of a defence contractor, or resource company.
Given the unsteady state of financial affairs within Blackberry, Samsung could present an argument to the Canadian government that its takeover of the company would preserve Canadian jobs. Blackberry is going nowhere fast, as its new CEO John Chen has stabilized things and is pushing to bring the firm to profitability. However, if Samsung promises to invest in creating more jobs in Canada the government would likely approach Samsung’s proposal with a very receptive ear.