From Vale to Vail, why Canadian hot properties end up in foreign hands: Don Pittis
Vale bought Inco and Vail bought Whistler Blackcomb. Does it really matter?
On my only visit to Canada's premier ski resort, Whistler Blackcomb, currently the target of a $1.4-billion takeover by a U.S. company, you needed a change of clothing from the chilly top to the balmy bottom.
As we saw during the 2010 Olympics, frosty weather and natural snow are no longer guaranteed at the side-by-side B.C. mountains. In fact, climate change may make the purchase of Whistler by Colorado-based Vail Resorts a shrinking asset despite a $345-million dollar plan to weatherproof the resort.
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Nonetheless, foreign direct investors can't seem to resist buying a piece of Canada, in this case perhaps because the resort is within easy striking distance of booming Vancouver and is a wilderness attraction for overseas visitors.
But the same thing applies in the corporate world, only more so, according to economist Armine Yalnizyan of the Canadian Centre for Policy Alternatives. Because traditional economic growth is weak, she says, companies are growing by buying.
"What comes to top of mind is this process of corporate consolidation in the wake of the 2008 crisis where there is no demand growth, so the way you grow your profits is by eating other smaller, profitable companies," Yalnizyan says.
Of course, she says, its a two-way market, with Canadian banks and pension funds scooping up foreign assets as well.
"With the Canadian dollar at 76 cents against the U.S. dollar, give or take, we're on a fire sale, so why wouldn't foreign companies buy up hot properties that are very profitable?" Yalnizyan notes.
Over Canada's longer history, a shortage of domestic investment capital has meant that the country has traditionally seen a net inflow of money from more established economies such as Britain and the United States. That continues to show up in Statistics Canada data where foreigners own more of Canada than Canada owns abroad.
All of those resource deals, condemned at the time, turned out to be fabulous for many Canadian shareholders who sold high, unloading their stake shortly before the commodity crash, says CIBC chief economist Avery Shenfeld. Selling mature companies is not the problem, he says, rather it's selling undeveloped companies too soon.
"The issue for governments is really to make sure that Canadian companies don't face impediments to building themselves and going international," Shenfeld says.
Small is dangerous
Shenfeld's comments echo those of his boss, CIBC CEO Victor Dodig. According to Dodig, the takeovers most dangerous to the Canadian economy hardly show up in the statistics because they are so small.
"Far too many Canadian high tech startups get bought out before they have a chance to grow," Dodig said in a November speech.
"When small and mid-sized startups are sold early, our country is weaker for it," the CIBC boss said. "We are much better off with entrepreneurs who see the merit of investing for scale and for reinvesting their wealth."
Last word on foreign takeovers goes to the Council of Canadians, the organization founded by recently deceased Mel Hurtig that was famously vocal for decrying the loss of Canadian sovereignty due to U.S. corporate takeovers.
The council's current chair, Maude Barlow, says that in a globalized world where international capital flows every which way, the group has moved past that view. It doesn't really matter who owns your ski resort.
Canadian companies with huge investments abroad, especially in resource extraction, are not very good corporate citizens and can have bad records on the environment and human rights, Barlow says.
"Some of our companies are predators out there," she says.
Also, she says, the changing nature of business ethics means there is little to choose from between Canadian companies and foreign investors.
The exception is that under trade rules, Canadian companies have to follow Canadian laws. But under many foreign investment agreements, offshore companies can sue the government if new or newly changed laws cut into their profits.
"I'm not suggesting that foreign control isn't important. It is," Barlow says. "But I think that the world has changed."
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