Canada Applies The Breaks On Foreign Takeovers

Canada is definitely not fully open for business “until the economy recovers from the effects of the Covid-19 pandemic.” In a terse announcement┬áin the middle of this past weekend, the Investment Review Division of Innovation, Science and Economic Development Canada moved to protect from foreign takeovers, businesses: “related to public health or involved in the supply of critical goods and services to Canadians or to the Government”.

Worried that declining valuations could lead to opportunistic (foreign) investment behaviour, the Government has announced enhanced scrutiny of foreign investments of any value and, as well, of investments by state owned enterprises or private investors assessed as being tied to or subject to direction from foreign governments.

In the weekend Statement, there is no elaboration on “critical goods and services”. However, pre-existing “Guidelines On The National Security Review of Investments” created a regime (separate from the “net benefit” test under the Investment Canada Act) which allowed the Government to review, block or mandate conditions on certain acquisitions including those with a potential impact on the security of Canada’s critical infrastructure: “processes, systems, facilities, technologies, networks, assets and services essential to the health, safety, security or economic well-being of Canadians and the effective functioning of government”.

The weekend Statement makes it clear that all investments no matter what size will be subject to a stricter national security review than was the case previously and encourages any foreign investor to seek regulatory clarity by filing notification under the Investment Canada Act very early.

The new foreign investment review provisions will delay or potentially block transactions of everything from a small technology company to a large manufacturer. While it is likely that it is medical supplies and equipment and pharmaceuticals which the government has in mind, the provisions will catch everything in its net.

For more information, please contact:

Barry Campbell:
T: 416-368-7353 x 101