Industry Committee on Feb. 17th, 2011

[Pierre Legault, Assistant Deputy Minister, Department of Justice]

The minister indeed has full discretion under the act to apply the factors in section 20 and normally the courts would not review that decision; however, the minister also has to follow the process that is described in the act, including the factors in section 20, the information provided to him under section 19, and so on and so forth. Indeed, a party could take the minister to court if they believed he did not follow the steps he has to follow under the act. That is possible.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Thank you.

Thank you, Mr. Chair.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Braid.

Thank you, Mr. Legault.

Monsieur Cardin, you have five minutes.

[Serge Cardin, Bloc, Sherbrooke, QC]

Thank you, Mr. Chair.

Good afternoon and welcome, ladies and gentlemen.

I imagine that someone has analyzed the potential impact of the objective, which in my opinion is to bring in more and more foreign investments, on industry in Canada. Let me explain.

Small and medium-sized businesses create most jobs in Canada and Quebec. When we had a threshold of $312 million, a certain number of businesses fell below that threshold. Do you have statistics that show how many there are today? When the threshold is $600 million, how many businesses will be exempt from review? And when we reach the $1 billion threshold, how many businesses will not be subject to review and will be able to be sold like that? I imagine you studied these statistics before suggesting that the government include this in its budget act.

[Marie-Josée Thivierge]

I will say first that I administer the act. So I work with the tool that I am given to administer. That being said, I would like to clarify one point, that the $312 million is still the threshold in effect.

[Serge Cardin, Bloc, Sherbrooke, QC]

Yes, but it's going to change.

[Marie-Josée Thivierge]

It hasn't changed yet, it is still the threshold in effect.

In terms of what might happen, it is difficult to predict the level of activity exactly since it varies a lot from year to year. So we can't predict exactly and with certainty how many transactions would have a enterprise value above the threshold at that point. Now, we essentially know with greater certainty that in the present circumstances and with the rules and thresholds that apply at present, in 2010, there were 16 transactions with a total value of $16.1 billion.

I will also be happy to give you the 2009 statistics. In 2009, there were 21 transactions, with a value of $30.3 billion.

[Serge Cardin, Bloc, Sherbrooke, QC]

Certainly we aren't yet at $1 billion, but when we are, a lot of businesses will probably be covered. If we look at the impact of the book value of the asset being changed to the enterprise value, we note that the amount of the enterprise value as such is probably going to be higher as compared to the book value. A relatively significant number of businesses will therefore be accessible to foreign investment without review, unless there is some security in all this.

The Competition Policy Review Panel strongly suggested that the government accept these changes. The government ultimately included them in Bill C-10. These people did a lot of analyses. You enforce the act and the regulations, but it is the group that gave the government its policy direction. Is that right?

[Richard Saillant]

Yes. I can quickly explain their underlying logic.

An initial concept that is not necessarily related to raising the threshold from $312 million to $1 billion is the concept of enterprise value. The reason they adopted it is because, in their view, it was a more accurate reflection of the significance and importance of the business in financial terms. When the concept of enterprise value has been clearly defined, its relationship with the concept of book value may vary from one industry to another and one economic cycle to another, because market capitalization is constantly changing.

Based on the concept that is adopted, the enterprise value and the relationship with the book value, that is, the ratio to be established, will be very variable.

[Serge Cardin, Bloc, Sherbrooke, QC]

It also depends on what speculation there may be by a foreign group.

[Richard Saillant]

That's right. So there are going to be variations from one industry to another, but it will also be influenced by conditions in the economic cycle.

The second reason cited by the review panel for raising the thresholds was to focus on what it considered to be the transactions that are most significant for the Canadian economy. That was the review panel's reasoning.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Saillant and Mr. Cardin.

We will now move on to the representative of the Conservative Party. Mr. Généreux, you have five minutes.

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Thank you, Mr. Chair. Thank you all for being here. You all have fine francophone names and it is a pleasure to hear you. I hope one day to be able to speak English as well as you, even though I understand everything you say.

In the documents you gave us, Ms. Thivierge, the expression "net benefit" comes up frequently. We are proud to be Canadian and obviously we want Canada to grow. This act essentially consists of allowing there to be net benefits for Canadians in each of these transactions. I don't think I'm mistaken in saying that.

Are you in a position to tell us how many transactions have taken place? You talked about 2009-2010, but since the act came into effect in 1985, is that kind of figure available?

[Richard Saillant]

I don't have the exact figure with me, but there are over 1,600 reviews at present.

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

There are over 1,600 reviews?

[Richard Saillant]

Yes.

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

If I understand correctly, one of those transactions was recently officially rejected. Before that, three others may have reached an initial stage before it was decided to drop them. That means that 1,596 or 1,597 transactions have passed the test. So there is considered to be a net benefit for the foreign companies to make Canadian acquisitions. Is that correct?

[Marie-Josée Thivierge]

Yes, that's right.

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Are you in a position to estimate total investments since 1985? I'm making you work hard.

[Marie-Josée Thivierge]

We do have that information. We would be happy to send it to you.

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

We will come back to it at other meetings, in any event. I don't know whether it will be you at those meetings, but I imagine so.

[Marie-Josée Thivierge]

We have that information. The value of the investments is reviewed every year. So we can provide cumulative information.

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

However, when a Canadian company buys a company abroad, are there any dealings with Industry Canada? On the same basis as foreign companies that buy something in Canada, is the reverse also true? Do Canadian companies have to go through a process with Industry Canada or not at all?

[Marie-Josée Thivierge]

No, the Canada Investment Act is for transactions by foreign firms that want to acquire Canadian firms.

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Is the opposite true?