Muted approval from investors yesterday afternoon for the strong arguments from BHP Billiton in favour of maintaining its current strategy for mergers and acquisitions, even if it has thrown up three failures.
Yesterday’s AGM in Perth heard chairman Jac Nasser and CEO Marius Kloppers both defend the strategy and argue in favour of maintaining it.
The market saw the news and didn’t object, even though the cumulative cost of the failed tilts at Potash Corp, Rio Tinto and the iron ore JV with Rio is around $US800 million so far.
BHP shares finished up 31c, at $44.50, which was a modest rise, but not the dip into the red there was on Monday after it pulled the Potash bid and re-opened the unused $US4.2 billion remaining from the 2007 share buyback.
Weak copper prices did help Monday, but copper was weak again in Asia, as were other commodity prices, so on that basis the small rise in the share price could be taken as a small ‘yes’ in favour of the board and management of the world’s biggest miner.
The shares opened solidly, fell to a low of $44.05, but finished on a rising trend as investors analysed the remarks to shareholders.
Chairman Jac Nasser told the mining giant’s annual general meeting in Perth on Tuesday that the decision to abandon the $US40 billion hostile bid for Potash had not been an easy one to make.
"The transactions we pursued over recent times, PotashCorp and the joint venture with Rio Tinto, would have added considerable value for shareholders whether in the form of iron ore synergies available in Western Australia or by accelerating our market position in commodities such as potash," Mr Nasser told the meeting.
"We are disappointed because we believe the acquisition would have delivered considerable value to PotashCorp shareholders, and importantly, to BHP Billiton shareholders. Although we believe that our ownership of PotashCorp would have created net benefits to Canada, we respect the Canadian Government’s decision.
"As one of the world’s largest and most successful resources companies, your Board has an obligation to look for options that create shareholder value. And your Board believes that it was in the interests of you, our shareholders, to pursue these transactions.
"However, it is also our obligation to end transactions when the Board believes shareholder value cannot be delivered.
"This can happen when conditions change or risks increase.
"We experienced this with the global financial crisis in 2008 and recently, as I said earlier, in Canada with the proposed acquisition of PotashCorp.
"These are not easy decisions to make but you can expect that we will always adopt the same disciplined approach to investment decisions.
"While we invested time and money in pursuing each opportunity, we continue to believe that the potential returns outweighed the risk of not being in the position to proceed."
Mr Kloppers showed little regret that the Potash deal was the third failed expansion move so far of his tenure running the company.
"We believe that the reasons provided by the Minister for Industry for his interim decision would have required undertakings that would have been adverse to our strategy and counter to creating shareholder value," Mr Kloppers said.
One of Ottawa’s main concerns was that BHP may delay development of its massive Jansen potash project in Saskatchewan province if it succeeded in taking over Potash Corp.
BHP told the government it would make a final investment decision in 2012, but that was not good enough.
"We have said all along that we plan to develop a significant presence in the potash industry, and this remains true today," Mr Kloppers told shareholders.
"Importantly, at BHP Billiton we take pride in doing what we say we will do and standing by the commitments we make.
"We have said all along that we plan to develop a significant presence in the potash industry and this remains true today."
He said the company would continue evaluating Jansen and other development opportunities in the province.
Mr Kloppers said BHP was well-positioned to take advantage of supply shortfalls in key markets as rivals had slowed expansion projects during the global financial crisis.
While it saw an "overall modest outlook for the world economy", it was encouraged by demand for coal and metals in emerging economies.
"As a result, the overall supply-demand conditions are favourable to us," Mr Kloppers said.
