Foreign Investment Rules and Recent Developments

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1 Investment Canada Act Foreign Investment Rules and Recent Developments Presented by Oliver Borgers Partner, McCarthy Tétrault LLP

2 2 Investment Canada Act Summary Applies to any acquisition of control of a Canadian business by a non- Canadian For significant transactions, the applicable Canadian minister must first review and approve the transaction on the basis that the transaction is likely to be of net benefit to Canada Minister of Industry (Christian Paradis) approval is generally required for acquisitions of Canadian businesses with a book value greater than C$344 million* This threshold is expected to rise to C$600 million of enterprise value once new pending regulations are passed (timing unknown) *Minister of Canadian Heritage must approve transactions with value in excess of C$5 million

3 3 Investment Canada Act Summary Generally the Minister will only approve a deal if he receives written commitments (undertakings) from foreign investor spanning three years or more (usually in relation to Canadian management, Canadian head office, capex, employment, R&D, etc.) The Canadian Government also has powers under the ICA to review any transaction (however small, including minority investments) if in the opinion of government the transaction may be injurious to Canada s national security If the Minister issues an initial rejection, the investor has an additional 30 days to persuade the Minister otherwise. Once a final rejection is issued by the Minister, there is no appeal. To date, there have only been two rejections under the ICA (BHP s bid for Potash Corp., and ATK s bid for McDonald Dettweiler & Associates)* *non-cultural deals.

4 4 CNOOC Approval - Dec. 14, 2012 Minister of Industry (Christian Paradis): CNOOC has satisfied me that their proposed transaction to acquire control of Nexen is likely to be of net benefit to Canada. CNOOC has made significant commitments governance, transparency and disclosure, commercial orientation capital investments.

5 5 CNOOC Press Release to demonstrate its commitment to Canada and the Canadian oil and gas industry, CNOOC Limited has agreed to carry out a number of commitments including the following: o CNOOC Limited will establish Calgary as the head office of its North and Central American operations ; o CNOOC Limited will seek to retain Nexen s current management team and employees; o CNOOC Limited will invest significant capital ; o CNOOC Limited will list its shares on the TSX; o social responsibility ; o support oil sands research ;

6 6 Government Statements (Dec. 14, 2012) welcoming foreign investment in the Canadian economy foreign State-Owned Enterprises (SOEs) could present certain risks inherently susceptible to foreign government influence the role of private sector companies must be reinforced

7 7 Government Statements (Dec. 14, 2012) Guideline requires that the investor satisfies the Minister of the investment s commercial orientation; freedom from political influence Given the inherent risks posed by foreign SOES acquisitions in the Canadian oil sands the Minister of Industry will find the acquisition of control of a Canadian oil sands business by a foreign SOE to be of net benefit to Canada on an exceptional basis only JV s allowed (as they are not acquisitions of control ) e.g. PetroChina/Encana natural gas JV announced in December

8 Government Statements (Dec. 14, 2012) 8 Government will be progressively increasing the review threshold to $1 billion ( the basis of the calculation will also be changed to enterprise value* to capture the increasing importance of the service and knowledge-based industries of our economy.) In the case of investments by SOEs, the existing net benefit threshold of $344 million in asset value will remain in place *enterprise value will likely be defined as market capitalization (plus liabilities, minus cash) for publicly listed companies and purchase price for private companies and asset deals.

9 9 Bill C-60 (April 29, 2013 Budget Bill) Defining SOE to include entities that are directly or indirectly influenced by a State Power of Minister to declare an investor to be a State Owned Enterprise.retroactively Power of Minister to declare that a minority investment (under the change of control threshold) that involves an SOE, is in fact an acquisition of control (and subject to review) retroactively Extension of national security timelines

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