Canadian Heritage Committee on June 1st, 2010

[Scott Simms, Liberal, Bonavista—Gander—Grand Falls—Windsor, NL]

We're going to split here.

[The Chair, Conservative, Gary Schellenberger]

Okay.

[Scott Simms, Liberal, Bonavista—Gander—Grand Falls—Windsor, NL]

This is an exercise in role-playing for the most part. Let's assume I'm an American investor. I see great value in a company that is here in Canada. I want to take control of it. I'm not using any names, but I think you know where this is leading to. I sit down with you for a meeting. Let's assume that I know nothing here.

What's the first thing you approach me with? Let's say that I'm that American investor who wants that Canadian property.

[Jean-Pierre Blais]

Before we get a meeting, there's a lot that happens--

[Scott Simms, Liberal, Bonavista—Gander—Grand Falls—Windsor, NL]

Okay, let's assume we've gone past that.

[Jean-Pierre Blais]

--because in fact we have a long-standing process. We have informal conversations even before an application can be filed and--

[Scott Simms, Liberal, Bonavista—Gander—Grand Falls—Windsor, NL]

In your first informal conversation, what would you ask about what I do?

[Jean-Pierre Blais]

Sometimes there are technical questions from the potential investor. Remember, it's the investor who deals with us, and not the target company. So we talk only to the investor and not to the other parties.

[Scott Simms, Liberal, Bonavista—Gander—Grand Falls—Windsor, NL]

That's right. That's what I'm saying. I'm the investor.

[Jean-Pierre Blais]

We would talk about some challenges. We'd talk about the net benefit test.

Most of the time, these companies are supported by a law firm, by lawyers who are very well versed in the Investment Canada Act. But let's say you had a less sophisticated investor. We'd go through the net benefit rules. We'd talk about delays in process and what we'd be required to file. We'd go through all the policies.

[Scott Simms, Liberal, Bonavista—Gander—Grand Falls—Windsor, NL]

Give me an example of some of the hallmarks you would seek out when you talked to these investors and how you would approach them. Let's assume I'm one of the less sophisticated ones.

[Jean-Pierre Blais]

We would go through what's indirectly.... And I'm not commenting on any live deals here. The test in section 20 talks about creation of jobs and technology, so we would inquire into whether this was going to bring potentially more investment in technologies, whether this would create new jobs or maintain jobs in Canada, whether it would create synergies, and what percentage of Canadians would maintain ownership of it. We would get to all of those criteria directly and indirectly through it.

And of course, because our area is culture, we'd discuss the cultural policies in place and whether the proposed transaction would be consistent with those policies, and if not, how we were going to address that concern.

[Scott Simms, Liberal, Bonavista—Gander—Grand Falls—Windsor, NL]

Can you tell me what the most common speed bump is for some of these American investors? What has been the most common problem in all of the discussions you've had?

[Jean-Pierre Blais]

I think it would be overstating it to say we have problems. In fact, most of them are represented by Canadian counsel who are well versed in the act. We have conversations, robust conversations, because of course we're trying to get more, and they're trying to get an approval but with the least amount on the table. So that's the nature of the debate.

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

Given that this is a cultural business, a takeover such as this presents a problem right off the bat. There are obstacles out of the gate. So the onus is on the acquiring company to show—it is prohibited—that there is a net benefit.

[Jean-Pierre Blais]

In every case, it is up to the investor to show the tangible benefits.

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

That is right. The onus is on them.

[Jean-Pierre Blais]

It is especially...

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

It is more rigorous in the cultural sector.

[Jean-Pierre Blais]

It is more rigorous when you have policies in place that prevent the takeover.

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

Fine.

The notion of net benefit is quite broad—you talk about it in your document. It can have a financial aspect, in other words, money. I can understand why a witness, be it him or anyone else, would not want to discuss it. Still, I want to understand the overall principle, not necessarily the one that applies to his testimony, in particular.

Does the so-called “privilege not to talk” apply to everything around the net benefit? Could anyone assert their right not to discuss anything related to the net benefit, by claiming that it could be prejudicial to them? Or does that right extend only to the financial transaction—it would indeed put him at a disadvantage to discuss that aspect—and he could discuss the matter of compatibility with Canada's cultural policies, for example, or some other aspect?

[Jean-Pierre Blais]

I think a distinction needs to be made between us, the officials, the department and the other members of the public service on one hand, and the investor, on the other. The restriction applies to us, the officials. There have been transactions in the past where the investors chose to say a bit more, to be more proactive. They are sometimes told there is a collective benefit to discussing the reasons why the department approved the transaction.

The restriction I mentioned earlier applies to us, not the investors. So there is a difference there. The act, which sets out the restriction, applies to all aspects of the transaction. It does not distinguish between the financial aspect and the tangible benefit, or the net benefits of the transaction. Section 36 includes everything.

[The Chair, Conservative, Gary Schellenberger]

Okay. Thank you very much.

Mr. Pomerleau, please.

[Roger Pomerleau, Bloc, Drummond, QC]

Thank you, Mr. Chair.

Mr. Blais, Ms. Marston-Schmelzer, thank you for being here.

I am not sure how far I will go with my questions. You will decide just how far you will go in your answers.

The Icahn representative we just heard from spent a considerable amount of time trying to show, point by point, that Lionsgate is not Canadian, that it is not Canadian owned or operated and that it does not even have a principal office in Canada. Control cannot be handed over to companies that are not Canadian.

In your opinion, is Lionsgate a Canadian company?

[Jean-Pierre Blais]

As you mentioned in the beginning, the questions are never indiscreet, but the answers can be. In this case, I do not think I can respond, as it is too close to...