Investment Canada Act amendment could complicate Glencore’s pursuit of Teck

A proposed amendment to the Investment Canada Act could complicate Glencore PLC’s GLNCY takeover ambitions around Canadian miner Teck Resources Ltd. TECK-A-T

Last fall, federal Industry Minister François-Philippe Champagne announced a series of changes to the Investment Canada Act that aim to toughen oversight over proposed acquisitions of domestic companies by foreigners. The changes include requiring acquirers to give Ottawa early notification of their intent to buy Canadian companies, extending the time period for national security reviews, and increasing financial penalties for those who don’t comply with the rules.

Bill C-34, which would enact these changes, has been making its way through committee hearings this year, and must be passed by the House of Commons and the Senate before becoming law.

While changes proposed by Mr. Champagne would already add hurdles for foreigners intent on buying Canadian companies, an amendment to the bill proposed by Conservative MP Rick Perkins could make life even harder for Glencore in its pursuit of Teck.

His amendment would mean that an acquirer of a Canadian company that has been convicted of bribery or corruption must be subject to a “Section 25.2″ security review by the federal government. Glencore has a significant track record of bribery and corruption offences internationally.

Currently all proposed acquisitions of Canadian firms by foreign firms are subject to an initial security screening, but a Section 25.2 review goes much deeper. It signifies that Ottawa believes the acquisition could be injurious to Canada’s national security, and may be further extended to a section 25.3 review. Those reviews typically take a long time to conduct, often stretching to a year or more, compared to screenings, which in the past have taken as little as 45 days.

Glencore, alongside several other suitors, has submitted a bid for Teck’s coal business. Teck put its coal business out for tender after an attempt to spin off the division failed this year because of insufficient shareholder support.

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Glencore last week reaffirmed its interest in Teck, saying it has set aside billions of dollars in capital to be put toward a potential transaction.

While Glencore is focused on acquiring Teck’s coal business, it is still open to buying all of Teck, which would include its significant portfolio of critical minerals mines. It maintains this interest even after Teck’s board rejected Glencore’s US$23.1-billion proposal.

Mr. Perkins, who alongside Conservative Leader Pierre Poilievre voiced his opposition to Glencore buying Teck, said he proposed the amendment to Bill C-34 in large part because of the Swiss company’s pursuit of Teck.

“Delving into the Glencore [pursuit of] Teck Resources, and Glencore’s history around the world, prompted me to think of this,” Mr. Perkins said in an interview.

Last year alone, Glencore paid more than US$1-billion in fines to settle bribery and market manipulation cases with U.S., British and Brazilian regulators.

After admitting to five counts of bribery and two counts of failure to prevent bribery, Glencore chair Kalidas Madhavpeddi in a statement characterized the company’s conduct as “inexcusable.” But he also signalled that Glencore has made big changes to its practices, saying it is committed to “operating transparently under a well-defined set of values, with openness and integrity at the forefront,” and that it had implemented a world-class ethics and compliance program.

Even if the amendment proposed by Mr. Perkins doesn’t end up being made law, there is good reason to believe that any takeover agreement Glencore may finalize with Teck would garner far more than a cursory security screening by Ottawa.

Several federal ministers have already expressed reservations about Glencore buying Teck, including Mr. Champagne, Natural Resources Minister Jonathan Wilkinson and Deputy Prime Minister Chrystia Freeland.

In addition to an amendment that targets Glencore, Mr. Perkins proposed another amendment that takes aim at Chinese state-owned enterprises with designs on Canadian companies. Any enterprise that doesn’t have a trade agreement with Canada would be subject to a net-benefit review under his amendment, regardless of the size of the acquisition. Under the current rules, acquisitions under a $512-million threshold are exempt.

“I got the government to agree to put that threshold to zero dollars,” said Mr. Perkins.

Last year, the Liberal government faced intense criticism for allowing the sale of Neo Lithium Corp., a Canadian critical minerals company, to a Chinese state-owned firm with only a cursory national security screening.

China dominates the supply chain of many critical minerals, including lithium, cobalt and graphite. In recent years, relations between the West and China have deteriorated and countries such as Canada and the United States have attempted to firm up domestic supply chains of critical minerals in order to wean themselves off their dependence on China.

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