par STEVEN CHASE and ANDY HOFFMAN AND SINCLAIR STEWART - The biggest foreign takeover in Canadian history has added new fuel to the corporate “hollowing out” fears buffeting Ottawa after London-based Rio Tinto Thursday struck a $38-billion (U.S.) deal to buy the 105-year-old aluminum maker Alcan Inc. of Montreal.
The friendly transaction, which the Harper government must approve, is sure to worry economic nationalists, who charge that Canada's corporate sector is being emptied by a rash of foreign takeovers, especially in the resource sector. In the past two years, foreign companies have taken over Canadian miners Inco, Falconbridge and LionOre, and steel makers Dofasco, Algoma and Ipsco. Computer chip maker ATI, Four Seasons Hotels and Hudson's Bay Co. have also gone to foreign buyers in recent years.
Alcan's fate appeared sealed early Thursday when Rio Tinto trumped rival U.S. bidder Alcoa with a knockout all-cash bid of $101 a share, an offer that Alcan's board is unanimously recommending to shareholders. The deal would make Alcan a division of Rio Tinto – a global company rooted in Britain and Australia – and help its new parent expand in India and China.
Together, Rio Tinto and Alcan would form the world's No.1 aluminum producer.
Just hours after the deal was announced, Finance Minister Jim Flaherty said he's still unsure whether there's cause for alarm about the sale.
“The issue of whether there is so-called hollowing out in Canada is really an open question,” Mr. Flaherty said Thursday as he and Industry Minister Maxime Bernier announced the creation of an expert panel to review foreign investment and competition rules.
“Statistically there's evidence both ways, quite frankly,” Mr. Flaherty said.
The Finance Minister added he's seen evidence over the past five years that “would show, if one accepted it, that we do not have such an issue in Canada.” He quickly added that more recent evidence might support hollowing-out fears, but he wasn't going to express an opinion on which side of the debate is right.
He also said he wants to hear advice from the new panel, which will be headed by CAE Inc. chairman Lynton (Red) Wilson and has until next June to report back to the government.
The other committee members are oil-patch billionaire Murray Edwards, Board of Trade of Metropolitan Montreal president Isabelle Hudon, Open Text Corp. executive chairman Thomas Jenkins and Bay Street lawyer Brian Levitt.
NDP finance critic Judy Wasylycia-Leis called the loss of control of Alcan “devastating” for Canada.
“When you lose the guts of your economy to foreign owners, you lose the heart and soul of your country,” she said.
She called on the Harper government to “use the reins of power to curtail these kinds of takeovers” in Canada.
“It's not just the loss of a business, it's the further erosion of sovereignty and the ability to control our own destiny,” Ms. Wasylycia-Leis said.
Mr. Bernier, whose responsibilities include vetting foreign takeovers, refused to comment on the deal and said the companies involved will have to prove a “net benefit” to Canada.
Ottawa has blocked no takeovers since the Investment Canada Act was passed 22 years ago, preferring instead to extract concessions from foreign buyers on matters such as job security for employees.
Thursday, Rio Tinto executives sought to quell fears about the loss of Canadian assets, saying the company was committed to Quebec and Canada.
The head office for the new aluminum division, which will be named Rio Tinto Alcan, will be based in Montreal and headed by Alcan's current chief executive officer, Dick Evans. Rio Tinto also said it plans to list its shares on the Toronto Stock Exchange.
Rio Tinto is the world's third-largest mining company, a heavyweight in commodities such as iron ore, copper, industrial metals, diamonds and bauxite, a key ingredient in the production of aluminum.
In Ottawa, Bank of Canada Governor David Dodge played down fears of foreign takeovers, saying the quality of management is more important than the nationality of a company's ownership.
“What matters, really, is that firms are well managed, and that they make the investments that are necessary to take advantage of global opportunities. And [if] changes in consolidation of firms, changes in ownership and so on, should … result in taking advantage of those global opportunities, then in fact that would actually be positive for Canadian employment and output,” he told reporters at a press conference to release the central bank's quarterly monetary policy report.
John Kinsey, a portfolio manager at Caldwell Securities, said the Rio Tinto-Alcan deal appeared to be a better fit than with Alcoa, but he said he would be “sad” to see another Canadian mining company snapped up.
“There have been an awful lot of good Canadian companies disappearing from the mining scene,” Mr. Kinsey said.