Midterm 2008 Summer - Barry

Midterm 2008 Summer - Barry - b Questions I Explain the...

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Questions #I: Explain the rules governing foreign ownership in Canada, how the interests b of corporations and government differ concerning foreign takeovers, and provide one example of a foreign takeover that would illustrate Mr. D'Alessandro's concerns. With the emergence of the recent takeover bid of Montreal-based Alcan from New York- based Alcoa, the controversial issue over whether the government should tighten the foreign ownership arises. The business corporations led by Mr. D'Alessandro, president and CEO of Manulife Financial and other CEOs of big Canadian companies called for tighter restriction of foreign ownership in Canadian sensitive sectors' while the government refused to change the related rules in the Investment Canada Act (ICA).~ Foreign investment in Canada was a "legacy" of the National Policy introduced by Sir John A. Macdonald in 1878. This policy focused on imposing high tariff on imported manufactured goods and welcoming foreign investment in Canada. Hence foreign investors saw it as an opportunity to invest in Canadian domestic market to avoid the trade barrier. This ~L, method of doing business resulted in a high foreign ownership in ~anada," and it is typically through the acquisition of Canadian business assets or voting shares (ICA).~ All foreign investments in Canada are subjects to notification and review, rules and regulations set by ICA (established in 1985), and other international trade agreements of which Canada is a member of, such as WTO, NAFTA, and APEC.~ All investments in order to ensure the "net benefit" of Canada are subjects to notification, and review is needed in special circumstance only. An acquisition transaction is reviewed if it exceeds $5 million for direction investment, $50 million for indirect investment, or $5 million
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with 50% of the asset or business acquired is located in ~anada.~ For WTO investors and vendors, the amount of threshold for review is adjustable, and it is $281 million in 2007.~ There are some restrictions on foreign investment in general and in specific sensitive sectors. The general rules are any investment must be of "net benefit" to Canada and must obey the Canadian status rule and ownership rule. The foreign ownership is restricted in some sensitive sectors. In telecommunication, the foreign ownership is restricted to 20% of voting shares of telecommunication and media companies or 33.3% of holding companies.* The foreign ownership control in airline industry, fisheries, and broadcast are 25%;' 49%1°, and 46.7%11 respectively. In financial service: foreign acquisition of a small bank (total asset less than $1 billion) must pass the "fit and proper" tests; the acquisition of a medium bank (total asset between $1 and $5 billion), the bank must be closely held and must have a public float of 35% of voting shares; and acquisition of a large bank (total asset exceeds %5 billion), the bank must remain widely held, and investors both Canadian or foreigner may own up to 20% any class of voting shares and 30% any class non-voting shares. However, there is no acquisition allowed in book publishing and distribution and film industry while joint venture is permissible. Also, the
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This document was uploaded on 10/25/2011 for the course LAPS adms1010 at York University.

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Midterm 2008 Summer - Barry - b Questions I Explain the...

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