The Securities and Exchange Commission supports changes in the law that would limit how much foreign investors may borrow to buy stocks, putting them on an equal footing with American investors, an SEC commissioner said yesterday.
Testifying before a Senate Banking, Housing and Urban Affairs subcommittee, Philip A. Loomis Jr. said that the agency supports proposed legislation that would "fill a gap . . . that seems to favor foreign nationals in efforts to acquire control of U.S. corporations."
The subcommittee is considering two bills. One, introduced by Sen. Alfonse M. D'Amato (R.-N.Y.), would extend U.S. margin requirements to foreign investors. The margin requirements allow potential investors to borrow only 50 percent of the value of the stock they seek to acquire.
Another bill, introduced by Sen. Nancy Landon Kassebaum (R-Kan.), would impose the margin requirement only on investors seeking to buy 5 percent or more of a company's stock. The Kassebaum bill also would impose a nine-month moratorium on acquisitions of more than 5 percent of the voting stock of any U.S. energy corporation by Canadian investors.
Both proposed pieces of legislation are in response to Canadian restrictions on U.S. investment there and recent takeovers or attempted takeovers of American firms by Canadian companies. Witnesses protested that the Canadian companies have been able to borrow 100 percent of the purchase price to buy control of American companies, even in cases where the acquiring firm was significantly smaller than its target.
The stage for those acquisitions has been set by restrictions on U.S. firms which make the cost of energy development higher for them than it is for Canadian firms.
With the U.S. firms at a disadvantage that depresses the price of their stock, and with potential bidders for control of energy firms subject to review by the Canadian government, "American companies are practically compelled to sell major equity interests in their Canadian subsidiaries, sometimes -- I should say often -- at distress prices," said former secretary of State George W. Ball.