Macro

Welcome to the Edge Advisory blog. Here you will find various opinion pieces on topical issues. Please let me know what you think and what suggestions for content you may have.

Canada’s rejection of BHP Billiton’s PotashCorp bid a return to protectionism?

Posted by admin on November 7, 2010 | No Comments »

Canada’s rejection of BHP Billiton’s bid for PotashCorp on grounds that it did not offer a “net benefit” to Canada, as required under the Investment Canada Act, can hardly be said to be a return to a more protectionist past. It is however a reaction to recent sales of some of Canada’s crown jewels of mining and of the global importance of PotashCorp’s assets.

Canada, as did many countries during that period, responded to the energy crisis of the early 1970’s by creating a national energy company – in Canada’s case Petro Canada. They did this by buying up Canadian assets of companies such as Atlantic Richfield, Pacific Petroleum, Petrofina and downstream assets of BP and Gulf Petroleum. This process, and a period of energy protectionism, was quickly reversed with Petro Canada’s privatisation in the 1990s.

Canadian openness, high by any global standards, reached its zenith in 2006-2007 with the sale of Inco to Vale and Falconbridge to Xstrata in 2006 and of Alcan to Rio Tinto in 2007. The rejection of BHP’s bid is partly driven by a backlash to these sales but also by the size of PotashCorp and its strategic importance. It is one of Canada’s largest corporations and controls 20% of global capacity for an increasingly valuable commodity. An extremely small number of targets will be in this position.

This rejection is very much the exception and not the rule.

The Future of Chinese M&A?

Posted by admin on November 27, 2009 | No Comments »

The acquisitive nature of Chinese companies has been making news over the past several months. Outbound M&A continues to increase. According to a recent Deloitte and mergermarket report, Chinese overseas M&A flow quarterly value increased from US$1.3bn in Q1 to US$8.9bn in Q3.

Known brands such as Volvo, Hummer and Delphi in automotive and resources companies such as Addax Petroleum, Tuas Power and Emerald Energy have been, or are in the process of being, acquired.

While this is to be applauded, how will success look like in 2-3 years?

M&A focus will push further into consumer industries as Chinese companies move to acquire brands and marketing and technology expertise. In those types of acquisitions, as opposed to when buying asset rich resource companies, the most challenging elements of post merger integration will become crucial. Namely, creating a shared vision, aligning leadership, governance and the organisation and moving to a shared company culture – all the while maintaining positive revenue momentum and extractive cost synergies.

Until Chinese companies gain more exposure to dealing with cultural diversity and to foreign markets, real success may, initially, be short term in nature.

Alternative Energy – A VC Approach?

Posted by admin on September 20, 2009 | No Comments »

International oil companies (IOCs) are addressing alternative (or renewable) energy in different ways; from largely ignoring it (ExxonMobil) to concentrating on specific areas (Shell with biofuels) to being schizophrenic in their approach (BP).

While it is clear that our world will continue to rely heavily on fossil fuels for the next several decades, it is also clear that alternative energy is the future. Climate change (driving consumer and legislative changes) and improving economics relative to traditional fossil fuels are helping to drive this future.

How should these companies respond? By acting like VCs.

As in the internet start-up days of the late 90’s it will be extremely difficult to spot the eventual winners – and large corporations have traditionally been poor at this. I would suggest creating a fund in partnership with select JVs. Doing this will ensure that IOCs can both monitor upcoming technologies and companies and profit from the innovations which will undoubtedly start to make up a greater and greater proportion of revenues.