May 30, 2018 by Andy Blatchford, The Canadian Press
OTTAWA—Business law experts say it’s highly difficult, if not impossible, to build a firewall around a company’s potentially sensitive data and other intellectual property when it’s the target of a takeover bid.
Concerns over access to such information are said to be a key reason why the federal government rejected a Chinese state-controlled company’s bid to acquire the Toronto-based Aecon Group Inc. construction firm.
Last week, the Trudeau government cited reasons of national security for its decision to block Aecon’s $1.5-billion purchase by CCCC International Holding Ltd. (CCCI).
A senior government source, who spoke on condition of anonymity due to the delicate nature of the file, said there were major concerns that the acquisition would have given China access to a wealth of sensitive data and intellectual property held by Aecon from its work on some of Canada’s most-critical infrastructure.
Aecon has a long history of construction in Canada and has worked on many key projects such as the CN Tower, Vancouver’s SkyTrain, the St. Lawrence Seaway, the Halifax shipyard, the Toronto subway and the refurbishment of Ontario’s Bruce nuclear power facility.
Colin Walker, a managing partner with Crosbie and Company Inc., in Toronto, said buying a company means obtaining all the assets that come with it, including historical information.
“Some of those records may be physical and some of them may be in people’s memories—so maybe it’s hard to put a fence around that,” Walker said Friday.
“The question might be, what kind of stuff could be there that would be contentious or of interest or damaging or a security threat?”
Other experts in the field said that, technically speaking, mitigation agreements can sometimes be part of these deals as a way to try and shield historical information from the buyer.
But such an agreement would rely heavily on monitoring and the good faith that parties involved will behave in the way they promised, said one expert, who spoke on condition of anonymity.
“To the extent there were concerns about access to this sensitive information, one of the reasons that they don’t always accept these firewall arrangements is that they can’t be guaranteed that people will abide by it,” the expert said.
The months-long review by Canada’s intelligence agencies looked at CCCI’s international record and its other, similar transactions and found there was seller’s remorse in some jurisdictions, the government source said.
Last Thursday, Prime Minister Justin Trudeau offered few details when asked about Ottawa’s confidential decision-making process behind the rejection.
“They made a very clear recommendation that proceeding with this transaction was not in the national security interests of Canada,” Trudeau said.
He suggested the decision was made, at least in part, to maintain Canadian control of key assets—such as the energy grid.
In doing so, Trudeau specifically pointed to the case of Australia, where he said people suddenly realized that “a significant portion of their energy grid, for example, is owned and controlled by a government that is not their own.”
State Grid Corp., owned by the Chinese government, has sizable power assets in Australia.
In 2015, CCCI acquired one of Australia’s largest engineering and construction firms. Five years earlier, it purchased an offshore architecture and engineering firm based in Houston.
On Thursday, China’s ambassador to Canada said he was very disappointed with the Trudeau government’s move to reject the takeover—and that he hoped the decision was not guided by “prejudice” towards his country’s state-owned companies.
Chinese state-owned enterprises, like CCCI, are no different from multinational firms in western countries in the sense that they want to expand their profits while strictly adhering to the rules of the market, Lu Shaye told The Canadian Press in an interview.
Lu warned the move would “attack the confidence” of Chinese investors seeking Canadian opportunities, but said Beijing would remain committed to deepening its ties with Canada.
Stewart Beck, president and CEO of the Asia Pacific Foundation of Canada, said while he thinks it’s important to trust the security-review process, he was “somewhat disappointed” by the outcome because he thinks the Aecon deal would’ve been good for Canada, even though the public might have had concerns with it.
A poll by Beck’s organization found that only 11 per cent of Canadians supported investment by Chinese state-owned enterprises.
“My hope is that it wasn’t a function of politics,” said Beck, who believes there are implications when it comes to Canada’s business relationship with China.
“From my time in China, I’ve learned that the Chinese have a tremendous number of levers that they can pull and you just never know which lever they will pull.”