Clement’s Takeover Hangover [Vale, Inco, Sudbury]-by Andy Hoffman and Jacquie McNish (July 22, 2009)

The Globe and Mail, Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous impact and influence on Canada’s political and business elite as well as the rest of the country’s print, radio and television media. Originally published July 22, 2009

“There was going to be no buyer, [for Inco] there were going to be no jobs, [Sudbury] there weren’t going to be any capital investments, there was going to be no employer.” — Industry Minister Tony Clement

“He’s either sadly misinformed or he’s ignoring the facts because back in 2006 we were a very successful company. There were lots of companies trying to buy us, not just [Vale].”— Scott Hand, Inco’s former CEO

The wave of foreign takeovers that cut a swath through Canada’s resource sector in 2006 and 2007 has become a critical problem for Industry Minister Tony Clement as the new owners break their acquisition promises not to slash jobs and production.

Mr. Clement is under fire for ill-informed comments regarding the sale of nickel producer Inco to a Brazilian mining giant, and for taking an inconsistent approach to enforcing the commitments the foreign companies made in order to win Ottawa’s consent for the controversial deals.

Last week, the government took the extraordinary step of going to court to demand United States Steel Corp. meet job and production pledges that were part of its acquisition of Stelco Inc. in 2007. The move, a first in Canada, has shocked industry and legal observers who say that Industry Canada has been much more flexible with other foreign buyers.

But Mr. Clement then portrayed Inco’s acquirer, Brazil’s Vale SA, as a local saviour – even though Vale, too, is cutting jobs earlier than promised, closing operations and grappling with a strike. Mr. Clement said Sudbury, the site of Inco’s flagship nickel operations, would have become a “Valley of Death” if the Brazilians hadn’t bought the company for $19-billion.

“There was going to be no buyer, there were going to be no jobs, there weren’t going to be any capital investments, there was going to be no employer,” Mr. Clement told The Sudbury Star in an interview.

The controversy over Mr. Clement’s reinterpretation of Inco’s history casts a stark light on the conflicting pressures the minister faces now that so many foreign acquirers are unable to honour promises made during the heady takeover boom that ended in 2007. These contractual promises, known as undertakings, committed the buyers of such Canadian giants as Inco, Falconbridge, Alcan and Stelco to preserve jobs, research and operations, typically for a period of three years after a takeover.

But in the wake of a severe global recession and swooning commodity prices, industry sources said a pilgrimage of foreign executives at companies such as Vale, Rio Tinto PLC and Xstrata PLC have travelled to Ottawa to ask Industry Canada officials for leniency because they argue they no longer have the resources to fully meet the undertakings. At the same time, workers and local politicians coping with shuttered plants are pushing Ottawa to hold foreign owners accountable for takeover promises that have been broken.

In the face of these headaches, Mr. Clement’s response has been uneven. According to people familiar with discussions, Mr. Clement and his staff at Industry Canada have been more sympathetic to foreign owners such as Vale, which sent senior executives to Ottawa to win support for cutting costs and jobs before the company’s undertaking expired.

Claude Gravelle, the MP for Nickel Belt and the federal NDP’s mines critic, said Mr. Clement is treating the Stelco job losses in Hamilton very differently than the layoffs in Sudbury.

“It’s obviously a double standard … why U.S Steel and why not Vale-Inco? Mr. Clement seems to have a mind for Southern Ontario and a mind for Northern Ontario. Judging by his comments, he doesn’t really seem to care about Northern Ontario,” said Mr. Gravelle.

Mr. Clement’s “Valley of Death” comment has sparked outrage because it implies that Vale rescued the Sudbury operation. In fact, the battle for Inco – which occurred when Mr. Clement was the federal health minister – marked one of the most hotly contested takeover wars in Canadian history. No fewer than four companies – Teck Resources of Vancouver, Arizona’s Phelps Dodge, Brazil’s Vale and proposed merger partner Falconbridge of Toronto – emerged as bona fide suitors or partners for Inco.

“He’s either sadly misinformed or he’s ignoring the facts because back in 2006 we were a very successful company. There were lots of companies trying to buy us, not just [Vale],” Scott Hand, Inco’s former chief executive officer, said in an interview.

“I think Mr. Clement ought to be more careful with the facts, because he just doesn’t understand what is going on,” Mr. Hand said.

Soon after the Inco takeover was complete, the price of nickel surged to nearly $25 (U.S.) a pound, providing Vale with massive profits from Sudbury to help it pay down the weighty cost of the acquisition. However, when the global economy imploded last fall, the price of nickel skidded to less than $5 a pound as demand dried up for the metal which is used to make stainless steel.

Vale reacted by cutting 900 jobs at its global nickel operations including 423 in Canada. 261 of the job losses were in Sudbury. It also announced plans to shut down the Sudbury operations in June and July to try and cut rising nickel stockpiles.

For the rest of the article, please go to the Globe and Mail website: http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/clements-takeover-hangover/article1226390/

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