This article was originally published on Bloomberg.com on August 21, 2012.
Hill & Knowlton Strategies is the busiest lobbying firm in Ottawa for foreign takeovers, using lessons learned from the country’s biggest failed takeover bid to advise Cnooc Ltd. (883) on its $15.1 billion offer for Nexen Inc. (NXY)
The Canadian division of the New York-based public relations company has lobbied on five foreign purchases of Canadian firms valued at $30 billion since it worked with BHP Billiton Ltd. (BHP) on its unsuccessful 2010 bid for Potash Corp. of Saskatchewan Inc., according to data compiled by Bloomberg from company filings and records kept by the country’s lobbying commissioner. That’s almost double the amount of any other firm among transactions of more than $1 billion.
“The big difference since Potash is the fact that politics could play an important role,” said Richard Wagner, a senior partner at law firm Norton Rose in Ottawa, who specializes in federal regulatory law. The company can add value “from the lessons learned point of view,” he said.
Investors increasingly are relying on public relations companies to navigate a government approval process that is becoming more political with the emergence of China as a buyer of resource assets, lobbying records show. Firms such as Hill & Knowlton are joining investment bankers and lawyers as standard players in takeovers.
Cnooc, China’s largest offshore energy explorer, has hired Bank of Montreal (BMO) and Citigroup Inc. as its financial advisers on the Nexen bid, the biggest proposed takeover by a Chinese company. It also hired Stikeman Elliott and Davis Polk & Wardwell LLP as legal advisers.
Earnscliffe Strategy Group, which advised Alcan Inc. in 2007 on Rio Tinto Plc (RIO)’s purchase of the Canadian aluminum maker, is lobbying for Nexen on the Cnooc bid.
Prime Minister Stephen Harper’s government rejected BHP’s $40 billion hostile bid for Potash, the world’s largest fertilizer producer, amid opposition spearheaded by Saskatchewan Premier Brad Wall. It was only the second rejection of a foreign takeover in Canada in 25 years.
Hill & Knowlton isn’t the only beneficiary of growing demand for lobbyists. About 40 percent of all foreign takeovers worth more than $1 billion have included registered lobbying work since the Potash rejection, up from less than 20 percent the previous three years, the records show.
“We’re getting a lot more calls,” said John Capobianco, senior vice president at Fleishman-Hillard, which lobbied on behalf of Potash during the hostile takeover. “Some companies don’t know the political landscape, don’t know the media landscape in the country where they’re trying to buy a company. If they don’t know how to handle that, that’s where they get into trouble.”
Canada’s system for weighing takeovers is “highly subjective and unpredictable,” Toronto-based research group C.D. Howe Institute said in a study released in December. The rules may have contributed to the decline in Canada’s share of global foreign-direct investment, it said.
Historically, Canada’s resources were “controlled by the British, then controlled by the U.S., because that’s where the capital came from, and now the concern is being controlled by China,” Wagner said.
Getting policy makers on their side early is a lesson Hill & Knowlton learned while advising on BHP-Potash, Canada’s largest-ever failed takeover. The day before Cnooc Ltd. announced its plans to acquire Nexen Inc., the Chinese oil producer’s lobbyists in Ottawa were contacting Canadian policy makers.
Hill & Knowlton Strategies Canada have lobbied Finance Minister Jim Flaherty, as well as Simon Kennedy, associate minister at Industry Canada and Chris Woodcock, director of issues management in Prime Minister Stephen Harper’s office, according to records.
Concerns the Cnooc bid may not get government approval have kept Nexen’s stock below Cnooc’s $27.50 per-share offer. The shares rose 12 cents, or 0.5 percent, to $25.82 at the close of New York trading. Cnooc today announced it is cutting its dividend to conserve capital for the Nexen takeover.
Late last year, Hill & Knowlton began laying the groundwork for the Nexen bid in Ottawa by lobbying on the Chinese company’s purchase of Opti Canada Inc., a smaller oil company that was working with Calgary-based Nexen Inc. (NXY) in an Albertan oil sands project.
Hill & Knowlton’s ability to offer both government relations and communications services, as well as its international scope, has helped it land work on foreign takeovers, said Steven MacKinnon, director of the firm’s transactions practice in Canada.
“There is wide recognition in companies who do large transactions that the requirement to communicate with a broad set of interested parties has become a mandatory component,” MacKinnon said by phone.
Hill & Knowlton, a unit of Dublin-based WPP Plc (WPP), has offices in 46 countries, including Brazil, Germany, Kenya, China and Australia. It is led in Canada by Chief Executive Officer Michael Coates, who helped Harper prepare for televised debates in three election campaigns.
Coates says the experience of the BHP rejection shows business leaders must consider political risks that may threaten acquisitions.
“The BHP Billiton-Potash case makes it clear that political risk is no longer limited to the developing world,” Coates said in an article co-written by Hill and Knowlton general counsel Terra Rebick. “Political pressure and tactics do not just come from the left of the political spectrum.”