Industry Committee on Aug. 7th, 2009

[Richard Dicerni]

As the process unfolded, I think there were two critical periods. One was when Nortel established a stalking horse bid, because again I'm given to understand from information we've received from the various parties that indeed RIM and Nortel were discussing certain commercial transactions. Once the stalking horse bid was put on the table by Nokia Siemens Networks and Nortel, it proved more difficult, as Mr. Lazaridis testified this morning, to consummate what appeared to have been a transaction being very close to completion. I believe that the subsequent one was toward the latter part of June, when the process for going forward in terms of the auction was identified. If there were concerns, I believe there would have been a couple of weeks for the company to raise with the monitor, or courts in Canada or in the U.S., their view that bondholders, creditors, would not be receiving optimal value from the process or this outcome. But I believe, for reasons that I think Mr. Lazaridis explained this morning, they made a business decision not to pursue this.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

In terms of the Investment Canada Act, the procedures and processes involved are probably not something most Canadians are overly familiar with. There's a net benefit component and a national security test component.

Taking a look at the national security test component, because that has been talked about quite a bit today, what are some cases—maybe not specific to this case—in which it would or wouldn't apply?

[Richard Dicerni]

I will ask Marie-Josée to expand on that, but I have two comments on my part.

One, the Department of Industry is involved in a wide range of endeavours and activities, ranging from our involvement with the auto sector to the aerospace sector, marquee festivals, and the knowledge infrastructure program. Public security is not in our sweet spot; we are not the department with expertise relating to matters of national security. There's another department whose day-to-day, bread-and-butter activities involve national security, the Department of Public Safety. They are the ones we would turn to for guidance in deciding, or providing advice to our minister, in regards to what are and are not matters of national security.

Secondly, this clause dealing with national security is a recent addition to the Investment Canada Act. It was brought in as part of the budget implementation act, and therefore, there have not been many cases discussed under this heading.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Dicerni.

Monsieur Masse.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chairman,

I'm going to follow up on that because I think it's important for the public to understand this. By adding that amendment, we—the minister and the government—circumvented this committee process and the due democratic process, because we didn't have a study of these amendments at committee, we didn't have testimony from expert witnesses, and we didn't have a chance to make amendments. So we actually have a significant departure in the Investment Canada Act that has never been tested before and never been analyzed. We could have had all-party support; I've been supporting this initiative for many years.

We're left now with a couple of blank spots, and now it has been five months. Where are we with the implementation of this act? Are we actually following the act?

There are two things I need to know right away. First of all, have you moved the threshold from $312 million to the $1 billion? It's supposed to happen over four years, but where is that threshold right now? Second of all, is the national security review active and ongoing right now?

[Richard Dicerni]

Again, I'll ask my colleague to respond, but I have two points.

No, it's not at $1 billion, and yes, it will evolve over four years.

Secondly, I take note of your initial comments dealing with the parliamentary procedures involved in bringing this amendment to pass, and I will forward those.

Thirdly, in regards to national security, there has been a draft regulation dealing with some general aspects of it, which I believe was released in July. There's a comment period of about a month, which I think closes on about August 10.

Marie-Josée.

[Marie-Josée Thivierge]

On your first point, although several of the legislative changes to the Investment Canada Act came into force when the bill received royal assent in March, as for the threshold, that provision is not yet in force. It requires regulation. The coming into force date will be set by the Governor in Council. So the threshold continues to be $312 million.

[Brian Masse, NDP, Windsor West, ON]

Thank you very much.

Will that will be made public later on as the threshold is increased, and the timetable for that?

[Marie-Josée Thivierge]

Correct. That's provided for in regulations.

[Brian Masse, NDP, Windsor West, ON]

With regard to this situation here.... Actually, it's not even a situation, because you can't speak on a specific situation, which I understand and appreciate.

But the argument Nortel is using is that their book value is $149 million. Now, the legislation also changed it from book value to enterprise value. Maybe you can explain that change a little bit.

Second of all, what criteria do you use to determine book value? They can have any book value they want; it's up to them to pull it out of the air. I think it's hard for Canadians and other people to accept something as $1 billion when it's only worth $149 million. There's a big chasm between the two.

[Richard Dicerni]

Marie-Josée will speak to the conceptual or methodological approach that is used, because we would really like to stay away from the specifics.

[Marie-Josée Thivierge]

To touch on your first point, on the enterprise value, you're right, the basis for calculating the monetary threshold where transactions become subject to the Investment Canada Act was changed in the last series of amendments to the Investment Canada Act. Now, that being said, the actual provisions related to the calculation of enterprise value are currently the subject of public consultations, so they're part of the regulations. So although the concept of enterprise value is in statute, the manner in which that enterprise value will be calculated, based on the different circumstances of a case, is now being consulted on and therefore is not in force.

[Brian Masse, NDP, Windsor West, ON]

So we're back to book value.

[Marie-Josée Thivierge]

So we are currently still implementing book value.

To the second point or your second question, the regulations, section 3.1 specifies clearly what constitutes essentially the book value or the value of the assets that are subject to a transaction. What the regulations say is that this value needs to be reflected in the financial statements of the Canadian company for the most recent fiscal year, and they have to be audited financial statements. So depending on the transaction and depending on the assets that are in play in a transaction, the information has to be submitted based on financially audited financial statements.

One last point is that the regulations do say that in the event that such audited financial statements of the Canadian company are not available, other financial statements might be submitted.

[Brian Masse, NDP, Windsor West, ON]

Okay. The reason it was switched to enterprise value, though, was probably for a situation just like this, was it not? I guess the difference is that there is the value of the company, but then there's the real potential value of the company; hence you see a situation evolve where you get something at a bargain basement price, but where the real value for someone else is significantly different.

[Richard Dicerni]

This was a proposal that flowed from Mr. Wilson's task force, which he felt would better capture the international environment as it relates to foreign direct investment.

[Brian Masse, NDP, Windsor West, ON]

Thank you.

Do I have any more time, Mr. Chair?

[The Chair, Conservative, Michael Chong]

Go ahead.

[Brian Masse, NDP, Windsor West, ON]

Just really quickly, then, when will the department date be officially triggered to analyze this situation as to whether or not it falls under this? You should be able to answer that. When does it happen; when the actual transaction takes place? When is the date for the minister to start to review whether or not it applies under the act, and how long does he have to respond?

[Richard Dicerni]

There are two points: one, we are in discussion with Ericsson, and two, there is no specific date.

[Brian Masse, NDP, Windsor West, ON]

So there's only a date when it actually is triggered, then.

[Richard Dicerni]

We are in discussion with Ericsson.

[Brian Masse, NDP, Windsor West, ON]

Okay, but if it is determined by the minister, I think it's 45 days, or something like that, that he has to report—

[Richard Dicerni]

There are legislated timetables. If it is deemed that a particular transaction/investment is reviewable under the Investment Canada Act, then there are timeframes of 45 and 30 days.

[The Chair, Conservative, Michael Chong]

Thank you very much, and thank you very much, Mr. Masse.

Mr. Dicerni, just to clarify some of the testimony that was given here, you mentioned that the new regulations concerning the monetary limit were in a public comment period right now, and that public comment period would end on August 10, in three days. I believe that is what you said.