Can BHP Billiton CEO Marius Kloppers survive a third failed expansion deal?
The market is telling him, ‘no more big deals’, via a surge in share price in london to a record high overnight.
The shares jumped 6.6% in London and nearly 6% in new York trading, after a smaller 2.5% rise here yesterday.
That’s a very strong message to the company’s board and Mr Kloppers.
They don’t want to see any more failed deals.
There was the aborted Rio Tinto takeover, the abandoned iron ore joint venture with Rio in the Pilbara, and now the rejected $US39 billion takeover of Canadian PotashCorp.
And some media reports say BHP quietly tried to snap up the assets of the now floating QR National last year for around $A5 billion.
While BHP has 30 days to put more information and contest the ruling, the Potash deal is dead.
And if BHP argues too hard in favour of the deal, big investors are likely to become even more upset.
They worry about the size of the deal and what happens if the global economy, especially China, hits a speed bump.
There’s talk big shareholders want a buyback to resume. One was suspended back in 2007-08 when BHP started trying to buy Rio Tinto.
There’s also media and analyst talk this morning of switching to oil, or copper or uranium.
A bid for Woodside was a popular tip from some quarters.
But there’s also a growing argument that BHP is simply too big for the comfort of many governments and its own investors.
Size can be a killer for companies: the larger they get the larger the deals they can do to be to be justified financially.
This rejection has suddenly closed a lot of doors around the world to the company (and to Rio Tinto and Vale of Brazil, another giant).
The GFC killed the Rio takeover, regulators killed the iron ore JV (and regulators would have done the job had the companies persisted with it).
Now the Canadian government has rejected the Potash takeover (and probably signalled that Canada is closing for business, despite comments from the government that this was a one-off).
Consequently, BHP was the best performer in the top end of the market yesterday in the wake of the rejection.
The shares leapt 3.3% on relief the firm may abandon a potentially long and costly takeover.
They settled back to be up 2.5%, or $1.09, at $43.70.
In contrast Rio Tinto shares fell 19c to $83.20.
“BHP Billiton is disappointed, but continues to believe that the offer is of net benefit to Saskatchewan, New Brunswick and Canada,” the company said yesterday in a statement.
“BHP Billiton will continue to cooperate with the minister and the Investment Review Division of Industry Canada and will review its options.”
In blocking the takeover, the Canadian government said a sale of the world’s largest fertilizer company (Potash) wouldn’t provide a “net benefit” to the country.
The government said the offer did not meet the test of being a net benefit to Canada under legislation regulating foreign takeovers of Canadian companies.
It said the country remains open for foreign investment as long as transactions can meet that threshold.
The news sent the Canadian dollar lower against the US dollar, which was under pressure from the Fed’s latest bout of quantitative easing.
The Fed decision sent the Australian dollar over parity against the greenback, where it has remained.
BHP was offering a $US130 a share, but Potash has been trading well above that level as investors bet, in part, on a higher bid from either BHP or a rival bidder.
Under the Investment Canada Act, a foreign investment of over a $299-million needs federal government approval.
The test, as measured by federal officials, is if the investment represents a so-called “net benefit” for Canada.
Shares in Potash ended trading Wednesday at $146.21, above BHP’s offer price but below the 52-week high of $160.
The decision was issued after markets closed.
There’s now a question over Canadian deals in Australia.
The Australian Foreign Investment Review Board last year approved a takeover by Canadian group Viterra for ABB Grains, the old Australian Barley Board.
There is now another Canadian deal in the queue at FIRB, the bid Canadian company Agrium has made for AWB, frustrating an original offer from Graincorp.
Canadian companies have bought infrastructure assets here in transport and communications, as well as financial and property assets.
