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FOREIGN INVESTMENT for example. "People are going to start thinking about that, and I think they already have frankly, in a way they didn't five years ago when people saw Investment Canada as a process that was just part of doing a deal — but thought realistically there was no way the transaction would not be approved. Now people are thinking there's a real risk this transaction's not going to go ahead and asking what they have to do to ensure it does." While there are anti-avoidance provisions in the Act, he says, "I think it's fair to say they're untested. There are certainly no reported decisions." Canada's foreign investment review Bar has been buzzing lately about the scope of those anti-avoidance provisions. "It doesn't talk about what the minister can do about an attempt to avoid application of the Act by a Canadian," says Wakil. "The anti-avoidance provisions are clearly directed at non-Canadian investors. This is something that could be highly controversial and something the government could be unhappy with and try to challenge investors on. But arguably you could have a multistep transaction that involves the setting up of a holdco and its acquisition. I'd say it's risky. "If BlackBerry tried to do that, the government wouldn't be happy. You'd want to think hard about it. But if you had an oil sands deal that was low profile, involving Statoil or someone like that, and there was a structuring that was done in a relatively safe way to avoid the Act, it could be viewed very differently. "So people are beginning to talk about things like this, and if you ask whether the guidelines are really going to have an effect on the structuring of transactions, or the way people perceive the Act, I think the answer is yes." WHILE THE RECENT REVISIONS to the Investment Canada Act will have the most direct impact on state-owned enterprises, the fallout is expected to affect valuations and deal pricing in Canada's oil patch. "If I'm a major Alberta player with oil sands assets, who might somehow be looking to an M&A transaction down the road, the universe of potential buyers is probably smaller than it was," says Garth Girvan, a senior M&A partner at McCarthy Tétrault LLP in Toronto. "The Exxons or Totals may feel that they're no longer going to have the competition they would have from the Chinese or Kuwait or some of the other state-owned enterprises that might otherwise be competing for an acquisition, so that pricing may not be as robust. "That changes the dynamic a little bit in people's minds. Even if the Chinese are not souring on the oil sands because they can no longer do control deals, this may be cause for some sober second thought about what they can do." Energy hungry and cash rich, China's international oil firms have spent or pledged to invest more than $11 billion in the oil patch since 2005. Donald Greenfield, co-leader of the energy practice at Bennett Jones LLP in Calgary, expects them to hang back until they get the lay of the land. "Nobody wants to announce a deal and try to get approval, then fail," says Greenfield. "My impression of the Chinese SOEs in particular is they'd regard that as a very bad thing. I don't know how reassurances are going to come, but they're going to have to get some reassurance that they're still welcome to do control acquisitions." Does he see an impact on valuations? "Oil sands companies opened lower the day after the new guidelines were announced so they've already had an impact. And I expect they will continue to have one because they take a bit of a take-over premium out of the market." Michael Hurst, an energy practitioner at Dentons Canada LLP in Calgary, says the question of valuations and future buyers is something "we're all asking ourselves. "If this new position results in a cooling of interest by SOEs toward oil sands opportunities, then there may be a consequent reduction in the cost that would be incurred by others to enter into oil sands businesses. But it's always going to be a very difficult thing to measure because there are significant factors such as the price of bitumen, for example." He says Canadian companies in the sector may have to take deals that are not quite as rich if SOE interest cools, "but the other thing that may happen, particularly if the cost of entry is lowered, is we may see private capital come back. We may see the same kind of deal flow but a different kind of investor … more large independent oil companies making investments in the oil sands." It's also vital for everyone to keep things in context: foreign control deals are off the table only for the oil sands, says Michelle Lally, chair of the competition law and foreign investment group at Osler, Hoskin & Harcourt LLP. "This policy only pertains to direct foreign investment by state-owned enterprises and, aside from oil sands, nothing is prohibited." What is important for every potential buyer trying to do a control deal in Canada is so-called "undertaking creep," says William Braithwaite, the chairman of Stikeman Elliott LLP. "Investment Canada has become more demanding in terms of what is required to meet the test of a deal being of net benefit to Canada, so there's this escalation of the asks from Ottawa in order to get your deal through," says Braithwaite, a leading M&A lawyer who was counsel to both CNOOC and Potash. "I think the sense is that each deal you need to give a little more than the past deal to convince Ottawa that you pass the net benefit to Canada test. So when you meet with your clients you tell them this is what's been done in the past, this is the zone you need to be thinking of — and you'll probably have to add a little bit more." As for the revisions themselves, Braithwaite says far from chilling foreign investment in Canada, he sees them as sending a very strong signal that foreign investment is welcome north of the border. "I think, if anything, there's a sense that having come down hard on the SOEs after the approval of the CNOOC deal, there will be greater willingness by Investment Canada to show the world that we're open to business. So I think we may well be in for a period where the climate is slightly more receptive to foreign investment. Increasing the thresholds directly affects Sandra Rubin is a freelance legal affairs writer. www.lexpert.ca | LEXPERT • June 2013 | 21 B-00-Features.indd 21 13-05-23 10:22 AM