Ownership means the right to sell
Well, that’s the picture you’d get from reading the papers, which these days more and more resemble an Asterix comic. In the part of the Romans, of course, we find the giant American mining firm of Phelps Dodge, prospective buyers of both Inco and Falconbridge in what would be the largest takeover in Canadian history.
And the opposition? That small village? Would you believe, Bay Street? Economic nationalism may be largely a spent force elsewhere -- even the Toronto Star could barely manage a languid “Goodbye to Inco” at the news -- but in the head offices of Corporate Canada the deal is causing much public fluttering over the country’s future. Capitalists playing at being nationalists: is there anything funnier?
It’s an old scam, of course -- the oldest. Confederation-era railway barons did not hesitate to play the Canada card if it helped secure a subsidy out of public funds. In its modern incarnation, it runs from the Committee for an Independent Canada, of which the chairman of Brascan, then the object of an unwanted foreign takeover bid, was a prominent supporter, to Molson’s, which rode a stridently nationalist advertising campaign (“I Am Canadian”) all the way into the arms of the Coors brewing company of Colorado.
The present scenario is proving a particularly rich source of comic invention. Start with the CEO of Inco, the U.S.-born Scott Hand, touting the company’s earlier offer for Falconbridge as a “made-in-Canada” alternative to a foreign takeover of either. In the latter event, he opined, “you would have hollowed out the corporate headquarters and Canada would be the lesser as a result.” Yes, that’s the same Scott Hand who just shipped both firms to Phoenix, Arizona.
This sort of rank hypocrisy was plainly too much for Norman Keevil, chairman of Teck Cominco, who accused Mr. Hand of having “sold Canada out for his own purposes.” It’s probably coincidental, but I can’t help noting that Teck has its own bid on the table for Inco.
And then there’s Peter Munk, chairman of Barrick Gold Corp., who warns the deal is “absolutely against Canada’s interests.” Why exactly he doesn’t say, but it seems to have something do do, again, with the physical location of the company’s headquarters. “All of us have a vested stake in having a major mining presence with a Canadian home office, as opposed to having the whole thing taken to Phoenix.”
The “hollowing out” argument has had a particularly sympathetic hearing in the business press. The Star might have been all right with the deal, but its business columnist, David Olive, issued a furious page-one screed denouncing it as “a mining disaster.” It was hard to see which was worse, in his view -- that the Americans were buying up our mining industry, or that they were paying us too much for it. I kid you not: “The deal is priced to perfection, as they say on the Street,” he notes, listing all the optimistic assumptions on which it depends.
It’s certainly true that Phelps Dodge is paying a premium for the two Canadian companies. Its offer amounts to about 15% more per share for Inco than Teck’s bid, with a comparable bonus for shareholders in Falconbridge over the price recently offered by Swiss-based Xstrata. Shouldn’t that matter? Doesn’t the shareholders’ interest count for anything?
Apparently not. In the course of yet another “hollowing out” manifesto, the Globe and Mail’s business columnist, Eric Reguly, pauses to consider it for precisely one sentence. “Shareholders are making fat returns, to be sure,” he sneers. But what about all those fabulous head office jobs? “After Inco and Falconbridge,” he wails, “an aspiring young geologist, engineer, accountant, environmental lawyer, or corporate strategist” will have little choice but to pursue a career in Phoenix, or worse.
Alert as I am to the pending tragic loss of this nation’s environmental lawyers, this strikes me as rather missing the point. If ownership of an asset means anything -- and economic nationalists would have you believe it means everything -- it means the right to sell. If the Canadian owners of Inco and Falconbridge agree to tender their shares, it’s presumably because they believe the price is at least equal to the expected future profits in those companies.
The proceeds from the sale, moreover, do not go into a mattress. They are, mostly, reinvested in other companies, with brighter prospects. The famous corporate names whose sales to foreigners send the nationalists into such periodic fits of despair -- the Incos and the Molsons, like the Eatons and the MacMillan Bloedels before them -- are famous because they are large, and old. They represent our country’s past, not its future, which will be made by companies just starting out, or not yet born.
It isn’t lawyers and accountants who create wealth, but entrepreneurs, whose ability to raise funds depends crucially on the owners of capital -- the people for whom the people in those head offices ostensibly work -- being able to sell one company, and buy another. How odd that the titans of Bay Street can’t see that.
7/05/2006
