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Imasco
INFORMATION CONCERNING IMASCO LI141TEDIS APPLICATION
FOR EXEMPTION UNDER FIRA
on December 22, 1980 Imasco applied to the Ron. Herb Gray, Minister
of Industry Trade and Commerce for a ministerial opinion to the
effect that Imasco was exempt from the provisions of the Foreign
Investment Review Act. The application was based on the grounds
that "de facto* control of Imasco rests with the company's board of
directors and management.
A number of factors prompted the application. Among these are: the
many difficulties, lengthy delays and additional costs Imasco
experienced in re-investing in Canada the approximately $100 million
per year currently available to It for new investments. These funds
are earned primarily in Canada through the efforts of some 11,000
Canadians.
In fact, the company's experience with the uncertainties and the
delays in the review process of the Agency and their unavoidable
consequences In the business world have led Imasco to conclude that
it could not rely solely on re-irvestment of its earnings In Canada
to meet its growth targets and responsibility to shareholders.
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In recent years, Imasco has gone outside Canada and made
significant investments in Hardee's Food Systems, Inc. of Rocky
Mount, N.C. and Burger Chef Systems of Indianapolis, Indiana. Our
total investment in these enterprises is over $200 million.
This step was taken despite Imascals long history of commitment to
Canada. Indeed, the preferred course of the board of directors of
the company has always been and continues to be expansion within
Canada.
Another factor prompting the company's application was direct
encouragement from the Ron. Herb Gray to seek an exemption. in a
letter dated December 8, 1980 Mr. Gray commented as follows to the
president of Imasco:
... the determination of 'non-eligibility' or
eligibility of any corporation depends upon
the eligibility or non-eligibility of the
person or persons who in fact control the
corporation. If, as you state, Imasco is r%j
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BAT Industries document for Province of British Columbia 13 April 1999

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in fact controlled by Canadians then the
corporation is not a 'non-eligible person'
for purposes of the Act. But of course it
is up to Imasco to show, if called upon to
do so, that this is indeed the case.*
The application for a ruling by the Minister documented extensively
the Company's contention that Imasco is in fact controlled by
Canadians. The following are a number of arguements made in support
of the company's position:
The company's senior shareholder is B.A.T Industries P. I.e. of
London, England. At the time of Imasco's founding in 1912
B.A.T held 831 of its voting shares. Today B.A.T holds 49.8%
and by the end of 1984 is expected to bold approximately 40%.
B.A.T has not been represented on the board of directors of
Imasco for more than 36 years and over the same period has not I
had a representative on the senior management team.
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Less than 15% of Imascols net earnings are paid out to B.A.T
by way of dividends and all shareholders receive identical
treatment.
Imasco conducts its own research and development activities in
Canada. its tobacco division has the largest self-contained
research facility in the tobacco industry In Canada.
Furthermore, in association with Shoppers Drug Mart and the
Canada Development Corporation, the company conducts the
largest-independent research programme related to the
pharmaceutical industry in Canada.
Imasco's procurement policy is based on using Canadian
materials and equipment where possible.
Imas co I banking relations, insurance arrangements, capital
expenditure programmes and now business investments are
determined by its board of directors and management group. %
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Control in fact of all aspects of Imasco rests with the board
of directors. Each director has signed an affidavit attesting
to his independent participation in all matters affecting
Imasco. This means that all functions of management including
the business strategies pursued by Imasco are the
responsibility of board members acting as autonomous persons.
No director or officer of the company is subject to any
direction from B.A.T
There has been no material change in any of the facts contained In
the application since it was submitted to the Minister. To date no
one in the Department or Agency has questioned or challenged these
facts in any way.
on September 18, 1981 the chairman and the president of Imasco met
with the Minister to review the status of Imasco's application.- At
this meeting the Minister expressed a number of concecna about the
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position of B.A.T in relation to Imasco.
Pollowing this meeting, in an attempt to address the issues raised
by the Minister, Imasco, with the agreement of B.A.T made a further
proposal on November 20, 1981.
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'The key feature of this proposal was an undertaking by B.A.T to
legally bind itself to assign its voting rights to the Canadian
anon-executive' directors of the Imasco board. Because of the
fiduciary responsibility of the members of the board of directors of
B.A.T to its shareholders this assignment could not be granted
irrevocably. However, the proposal included a provision that if the
assignment should be revoked for any reason, all transactions
completed by Imasco in the two years preceeding the revocation would
become reviewable by the Foreign investment Review Agency. The two
year period was selected because Ministerial exemptions are
renewable every two years.
On August 3, 1982, imasco was notified that its proposals were
insufficient to enable the Minister to rule in favour of the company.
The company is bitterly disappointed by this turn of events. The'
Company's shareholders and the Canadian investment community are
well aware that Iviasco believes an exemption from the contraints of
the Foreign Investment Review Act is Important for the company's
continued growth in Canada. In fact, in previous public statements#
the exemption has been described as the single most Important
strategic factor affecting the growth of Imasco in Canada.
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The Minister could have concluded that Imasco was controlled in fact
by Canadians even though this control co-exists with a significant
foreign shareholding. As Mr. Gray stated in a letter he wrote prior
to the filing of the company's application, the key criterion Is the
status *of the person or persons who in fact control the
corporation*. Any review of Imascols corporate history clearly
shows that the persons who in fact control the corporation are
Canadians.
Mr. Gray's unwillingness to rule in Imasco's favour and his
continuing view of Imasco as a foreign controlled corporation not
only flies in the face of the realities of Imascols particuliar
situation but keeps in.a kind of corporate limbo many enterprises
which, like our country, were founded and matured with help from a
foreign parent.
The Minister has missed an opportunity to liberate and focus the
creative economic energies of all such corporations on further
investment in Canada. This at a time of high inflation, high
unemployment, high interest rates and when the Canadian dollar is
near its all-time low.
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The Minister's decision also puts in question the entire evolution
of corporations like Imasco. Successive board of directors and
management teams at Imasco have convinced B.A.T of the importance
and benefits of giving to the members of the board complete autonomy
to direct the commercial destiny of Imasco as a Canadian corporation
and ensure that it Is an active, responsible member of the Canadian
community.
Imasco I board of directors has reach ed two conclusions since
receiving the Minister"s decision:
First, despite this setback Imascols resolve to invest in Canada is
undiminished. The company will direct its efforts towards ensuring
that changes are made to the Act so that it may more effectively
provide economic benefits to all Canadians.
However, being subject to the Foreign Investment Review Act places
Tmasco and many other companies at a competitive disadvantage in
terms of costs and time for making acquisitions In Canada.
Consequently, it Is expected that an important portion of Imasco's
cash flow available for new investment in Canada may, of necessity,
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It is worth recording that Imasco I recent investments in Hardee's
and Burger Chef represent an expenditure of over $200 million while
total expenditures in the 4 business investments approved by the
Foreign Investment Review Agency since March 1980 total only $12
million.
The second conclusion is that the basis on which foreign investment
is currently reviewed is in many instances contrary to the country's
economic interests.
Imasco has always agreed with the concept that government should
screen foreign Investments to ensure that the economic needs of
Canada and Canadians are well protected. The evolution of Imasco
since 1912 is evidence of the company's belief in this policy.
Therefore, to be placed in the position of being denied the status
of a Canadian company and forced to look for investment opportunites
outside of Canada for the moneys we earned in Canada Is shocking.
This surely cannot be the desired result of public policies Intended
to ensure maximum benefits In Canada from foreign investment.
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rmasco is determined to make its experience knourn to Canada's
legislators and to ask that this undesirable side effect be remedied PO
when the Parliament of Canada next examines the Foreign Investment E
Review Act. CD
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BAT Industries document for Province of British Columbia 13 April 1999