(Repeats Aug. 22 column without changes)
By Jeffrey Hodgson
TORONTO (Reuters) - Canadian investors will face an
awkward question if a foreign player succeeds in buying Potash
Corp: Where do I put my money now?
The deal, which could rank as 2010's biggest global
takeover, would bring a nice boost during a tough year for
local shareholders, mutual and pension funds -- BHP Billiton's
$39 billion bid is so large it triggered a brief rise
in the Canadian dollar.
But a successful bid for the world's No. 1 fertilizer maker
would also remove the sixth-largest company from the Toronto
Stock Exchange. That prospect has revived a debate on the
"hollowing out" of Canada's main stock market.
"If it does get delisted from the TSX, that's a negative
... It reduces the presence of the TSX in general and it makes
our job a lot harder if there are less companies that are of
larger (capitalization)," said Andrew Parkinson, a fund manager
with Vancouver-based Van Arbor Asset Management.
Many Canadian fund managers regard Potash Corp as one of
the crown jewels in the resource sector. It is by far the
largest producer of the crop nutrient and plays a key role in
setting the price of fertilizer globally.
During the grain price rally of 2008, the stock briefly
topped C$246 in value, making it the largest company on the
Toronto Stock Exchange by market capitalization, a spot now
held by Royal Bank of Canada.
The miner closed at C$157.06 Friday. It accounted for
more than 4 percent of the blue chip S&P/TSX 60 index
and nearly 3 percent of the broader S&P/TSX composite index
For many fund managers, the deal echoes the burst of
resource-related takeovers from before the credit crisis, when
foreigners bought and delisted some of Canada's biggest firms.
"That hurts the diversification of the index and it's not
something I look forward to," said Don Reed, a fund manager and
chief executive of the Canadian subsidiary of Franklin
"When you take a look at the Canadian market, to lose these
major world players is not good for investors because it gives
investor less choice."
Past takeovers include nickel producers Inco, once the
Western world's largest, and Falconbridge -- bought by Brazil's
Vale and Anglo-Swiss Xstrata respectively.
Rio Tinto picked up Montreal's Alcan, one of the
world's biggest aluminum producers.
The wave also took out the top names among Canada's
publicly listed steel makers, although a handful of Canadian
companies bulked up with foreign buys as well. These included
Manulife Financial's purchase of U.S. insurer John
"Looking at diversified, large cap, base metals, we really
have Teck (Resources Ltd). Beyond that if you want a
diversified, large cap, base metal player you really have to go
beyond Canadian borders," said Paul Taylor, chief investment
officer at BMO Harris Investment Management, which manages more
than C$12 billion ($11.4 billion)
"It is becoming more challenging in that the potential
universe of names is shrinking. We saw that, for instance, in
steels -- Dofasco, Ipsco, Stelco, those are all gone. So your
options are more limited."
LAMENT LOSS, BUT MOVE ON
While local investors and fund managers may fret about the
loss of big resource plays, they don't expect politicians or
regulators to stand in the way, even though regulations say a
deal must be of net benefit to the country.
"There's nothing in the legislation that says you can stop
a takeover because it hollows out the TSX. It may be on their
minds but it's certainly not written into the law," said David
Baskin, president of Baskin Financial Services.
Ultimately, few in the financial sector believe the deal
should be stopped, arguing that blocking an offer would
discourage foreign investment, hurt demand for many Canadian
resource stocks and damage domestic financial markets.
Instead, they argue that Canadian investors should either
look to opportunities abroad or in the lower ranks of the
domestic markets, where future global leaders may be
"I'm pretty confident in the ingenuity of Canadians and
Canadian companies to grow, much as they've grown Potash," said
Ari Levy, a fund manager with TD Asset Management.
(Editing by Janet Guttsman and Rob Wilson)