Foreign acquisitions: Under further review

Foreign acquisition rules are getting muddier.

When Research In Motion launched a last-minute attempt to stop the sale of Nortel Networks’s assets to Ericsson, co-CEO Jim Balsillie played the Canadian card. A RIM release stated the deal “may significantly, adversely affect national interests, with potential national security implications.” The matter is now a subject of parliamentary debate.

Proposed new rules, published by Industry Canada in July, are supposed to clarify whether a corporate sale threatens national security. Unfortunately, they may complicate the process further, according to a pair of Ogilvy Renault lawyers, Kevin Ackhurst and Paul Beaudry. In a commentary, they point out that what constitutes a national security threat isn’t defined. Nor is there a standard mechanism to pre-clear transactions that aren’t a threat to this country’s health.

And while the financial threshold at which a review kicks in was raised to $600 million from $312 million for share acquisitions, that figure is no longer calculated using the book value of a company’s assets, but its enterprise value — a looser figure based on market cap, plus total liabilities, minus cash and cash equivalents. Since that number fluctuates, a deal that may not initially spark an automatic review, may end up doing so. So much for increased clarity.