November 4, 2010 | In: Opinion

Shaking the Trust in Canadian Equities

The Canadian government, in an unpredictable move, decided to block BHP’s bid for Potash of Saskatchewan. The reasoning was that the sale does not provide a net benefit for the Canadian economy, as jobs may be lost (it seems that locals have complained to the local government who then passed the complaint to the federal government), and a foreign company will start exploiting Canadian resources for a limited price (even though it was $40 billion).

To be honest I don’t want foreign companies to have access to Canadian resources without the government overseeing the exploitation, that’s my personal opinion, but this is not what’s important now. What’s important is that the move by the Canadian government will destabilize the trust in Canadian equities in general, and will block the injection of the (apparently not very much) needed money in the Canadian company (that’s $40 billion).

Many Canadian stocks are going up because there are rumors that these companies may be acquired, and usually the acquiring companies are not Canadian, and may very well fire employees.

A perfect example of such stocks is RIMM, that has gone up 12% last month alone, returning to the July level of the stock. RIM is valued at $30 billion, any bid for RIM would be at least for a $100/share, which is over $52 billion. Will the Canadian government also block this deal? Maybe not, but that doesn’t matter anymore, because capital is a coward, and does not approach countries where heavy governmental regulations are in place.

I thought Canada was working hard to attract investors, what happened? PS: the number again is $40 billion, and to keep things into perspective, Saskatchewan’s population is just over a 100,000.

It’ll be very interesting what’ll happen to RIMM and POT (a stock that I thankfully didn’t buy on Monday) in the next few days.

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