Set aside "hollowing out" rhetoric and resist calls for more restrictions on foreign ownership: Conference Board

    TORONTO, Jan. 28 /CNW Telbec/ - Canadian governments should set aside
"hollowing out" rhetoric and limit further foreign direct investment
restrictions to state-owned enterprises in cases where national security
interests are threatened. Governments should also examine relaxing ownership
restrictions on a sector by sector basis, according to a Conference Board of
Canada study released today.
    "On balance, we believe that policy changes that restrict foreign
investment could have negative ramifications for Canada. The federal
government should proceed very cautiously before introducing any new
restrictions," said Anne Golden, President and CEO of the Conference Board.
"Restrictions should only be considered where takeovers present a potential
risk to Canadian security."
    These recommendations are based on the findings of a landmark study on
"hollowing out" by the Conference Board, which concludes that mergers and
acquisitions (M&As) have generally positive effects on companies being taken
    Overall, "corporate takeover effects" (CTEs), resulting from M&A
activity, are positive for shareholders of the company being acquired, and
mildly positive on operations, capital, people and community involvement. But
takeovers have a generally negative effect on governance and management-that
is, the number of Canadians on the board of directors and in senior management
diminishes following a merger or acquisition. These findings explain why those
who focus on governance and senior management equate M&As with "hollowing
out," whereas those who take a broader view do not.
    With the federal government's Competition Policy Review Panel
investigating Canada's policy options, "Hollowing Out"-Myth and Reality:
Corporate Takeovers in an Age of Transformation is the Conference Board's
contribution to the debate, released today at a meeting of government and
business leaders. The study examines the "corporate takeover effects" on
companies being acquired, which refers to the impacts and consequences of
changes that new owners make to corporate control, governance, structure,
functions and operations. The term "hollowing out" is a subset of CTEs,
referring to the negative effects of changes made by new owners.
    "Mergers and acquisitions are a positive part of the process of
competition for capital and corporate control," said Golden. "Instead of
attempting to create global corporate "champions", the federal government
should continue to concentrate on establishing conditions for all Canadian
companies to prosper, and consider relaxing foreign ownership and operational
restrictions in protected sectors."
    The recent spate of foreign corporate takeovers of Canadian
companies-such as Inco, Falconbridge, Hudson's Bay Company and Alcan-brought
foreign ownership to levels not seen since the 1970s. Two key factors were at
work: the low cost of capital and the commodity boom. A disproportionate
number of M&As have taken place in Canada in recent years because of the
importance of natural resources. Between January and November 2007, three
sectors alone accounted for over half of the total M&A activity involving
Canadian companies: mining and metals ($52 billion), oil and gas
($48 billion), and real estate ($31 billion).
    The report is being released today at The Hollowing Out and
Transformation of Corporate Canada: Myth or Reality? Conference, organized by
the Conference Board and SECOR Consulting Ltd., and held at the Sutton Place
Hotel. In addition to the presentation of the findings, and a panel discussion
among Canadian business leaders, federal Minister of Finance Jim Flaherty will
provide the federal government's perspective.
    The executive summary and Volume 1 are available at

For further information:

For further information: Brent Dowdall, Media Relations, (613) 526-3090
ext. 448,

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