It was an obvious call, but BHP Billiton has withdrawn its $US45 billion bid for Canadian fertiliser company Potash Corporation of Saskatchewan, and restarted its long suspended share buyback, in effect going to option C for a corporate strategy.
The company revealed the moves yesterday morning, a day ahead of the AGM in Perth later today.
The news left the market underwhelmed with the shares down 16c at $44.14.
Given that investors didn’t want BHP to spend money buying Potash or anything else, the result looks a bit churlish, but if anyone noticed, gold, oil and copper prices (plus nickel and aluminium) all fell sharply on Friday.
The announcement yesterday won’t stop questions being asked at the meeting today, but the decisions will mean the debate can move onto other items, such as what does BHP do with its huge, under-used balance sheet and monster cash flows next year and the year after?
BHP said yesterday that it will reactivate the remaining $4.2 billion part of its suspended $13 billion buyback program.
In yesterday’s statement BHP said the condition of its offer could not satisfy a net benefit determination by the Canadian minister of industry under the Investment Canada Act.
BHP Billiton chief executive Marius Kloppers said the mining giant was disappointed in withdrawing its bid.
"Unfortunately, despite having received all required anti-trust clearances for the offer, we have not been able to obtain clearance under the Investment Canada Act and have accordingly decided to withdraw the offer," Mr Kloppers said.
"We remain committed to Canada and we plan to develop a significant presence in the potash industry in Saskatchewan."
A transaction cost of $US350 million related to the Potash bid would be recognised as an exceptional item in the December 30, 2010 accounts.
Some US250 million of the transaction cost was for the $US45 billion in debt financing that BHP’s banks had organised for the Potash bid.
"The decision to reactivate the buy-back program is entirely consistent with our commitment to maintain an appropriate capital structure while we continue to make substantial investments in our growth projects," BHP chairman Jac Nasser said in the statement.
The withdrawal marks another costly deal failure for BHP, which in 2008 walked away from its hostile attempt to buy rival miner Rio Tinto. The two companies last month also scrapped the proposed Pilbara iron ore joint venture in the face of regulatory opposition.
BHP revealed in its statement that it had offered to post a $US250 million performance bond with the Saskatchewan provincial government; undertaken to spend $US450 million on exploration and development over the next five years, in addition to work on the potential Jansen Lake mine in Saskatchewan.
It would have spent a further $US370m on infrastructure projects, listed its shares on the Toronto stock exchange and set up its global potash headquarters in Saskatoon.
"In addition, BHP Billiton was prepared to make a unique commitment to forego tax benefits to which it was legally entitled and, as a condition of the Minister’s approval, BHP Billiton was prepared to remain a member of Canpotex for five years.
"Both of these undertakings were intended to allay any concerns the Province of Saskatchewan may have had regarding potential losses in revenues."
Canpotex is in effect a selling cartel that dominates world trading in Potash and controls exports and sales from Canada.
In other words, for at least the first five years, BHP was prepared to trade away all its price and operational advantages from buying potash to satisfy the provincial and Canadian governments.
It’s clear the BHP offer was rejected for political, not economic or business reasons.
Canada’s Prime Minister Stephen Harper couldn’t afford a brawl with the provinces, especially with the Saskatchewan leader Brad Wall who had decided to campaign against Mr Harper and his Conservatives if they approved the offer.
