MELBOURNE: Top global miner BHP Billiton scrapped its $39 billion bid for Canada's Potash Corp, the world's biggest deal this year, and bowed to calls from investors to return cash with a $4.2 billion share buyback, according to a Reuters report on Monday, Nov 15.
BHP, conceding defeat for the third straight time on a major proposed acquisition, signalled with its revived share buyback that it had limited opportunities for other big buys.
"I think the regulatory environment is very difficult to negotiate when you are as big as BHP," said Tim Schroeders, a portfolio manager at Pengana Capital, who has shares in BHP.
"They have been very ambitious in terms of the size of deals that have been proposed and that makes it very difficult to fly under the radar in terms of the regulatory process."
Canada blocked BHP's bid for the world's largest fertiliser maker on Nov. 3 and gave BHP a month to prove the takeover would benefit Canada.
"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," BHP Chief Executive Marius Kloppers said in a statement.
NO CLEAR BENEFITS
BHP said Ottawa was asking for too many concessions beyond the more than $1 billion worth of undertakings the company had already offered as benefits to Canada.
In the first public comments on why Ottawa blocked BHP, Canadian Industry Minister Tony Clement said it was partly because BHP has no expertise in potash mining and marketing, so it was not clear the deal would benefit Canada.
"BHP did not demonstrate to my satisfaction that their plans to market potash would enhance Canada's already prosperous position to compete internationally," he told reporters in Toronto after BHP withdrew its bid.
He acknowledged the rejection was controversial and said Canada continued to welcome foreign investment.
"Our government recognises, however, that there may be ways to improve the review process," Clement said.
Canadian Prime Minister Stephen Harper said on Sunday the government would set out guidelines to clarify what major foreign investments would be acceptable.
Potash Corp said it was vindicated in its decision to reject BHP's offer of $130 a share as too cheap and was in a strong position to grow on its own.
BHP said it would continue to pursue its Jansen potash project in Canada, which would be the world's biggest single potash mine.
"We remain committed to Canada and we plan to develop a significant presence in the potash industry in Saskatchewan," Kloppers said.
BIGGER BUYBACK
Investors and analysts said BHP's share buyback came as no surprise, although the timing was a bit sooner than expected.
BHP reactivated the remaining $4.2 billion of a $13 billion buyback it put on hold in 2007 when it launched a bid for rival Rio Tinto.
Shareholders who have been clamouring for a capital return said the $4.2 billion was a good start but said the company, which has $12.5 billion in cash on hand and gearing of just 6 percent, could afford to return much more.
"As a result we would expect an increase in dividends and possibly further buybacks over the coming year or so," said James Bruce, a portfolio manager at Perpetual Investments, the 10th-largest investor in BHP's Australian shares.
BHP could return $10-$15 billion, CLSA analyst Hayden Bairstow predicted.
At 2355 GMT, BHP shares were up 0.3 percent at A$44.44 and in line with the broader market, with analysts saying a share buyback had already been priced in since Ottawa vetoed BHP's bid for Potash Corp.
Potash Corp closed down 1.4 percent on Friday.
BHP will book $350 million in costs for the Potash Corp deal, with about 70 percent of that reflecting the costs of the $45 billion financing facility it had lined up for the deal.
Kloppers has long said the company would prefer to spend its cash pile on development projects and acquisitions rather than giving it back to investors.
Shareholders will be eager to hear what further growth prospects the company will chase with its cash pile when he fronts the group's annual meeting in Australia on Tuesday.
Shareholders continued to back Kloppers, despite his having had to abandon the Potash bid, the Rio Tinto bid in 2008, and an iron ore joint venture with Rio Tinto last month that would have yielded $10 billion in savings.
"Marius continues to run the company in an extremely efficient manner. The fact that he's been unable to consummate a couple of deals doesn't change our view on his ability to manage the company," Perpetual's Bruce said.
Investors and analysts blamed regulatory or political factors and not any failure by BHP for wrecking the deals.
The failed Potash Corp deal is a blow to the investment banks advising BHP: JP Morgan, Royal Bank of Scotland and Barclays.
Potash Corp was advised by Bank of America Merrill Lynch Goldman Sachs and RBC Capital Markets. - Reuters
BHP, conceding defeat for the third straight time on a major proposed acquisition, signalled with its revived share buyback that it had limited opportunities for other big buys.
"I think the regulatory environment is very difficult to negotiate when you are as big as BHP," said Tim Schroeders, a portfolio manager at Pengana Capital, who has shares in BHP.
"They have been very ambitious in terms of the size of deals that have been proposed and that makes it very difficult to fly under the radar in terms of the regulatory process."
Canada blocked BHP's bid for the world's largest fertiliser maker on Nov. 3 and gave BHP a month to prove the takeover would benefit Canada.
"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," BHP Chief Executive Marius Kloppers said in a statement.
NO CLEAR BENEFITS
BHP said Ottawa was asking for too many concessions beyond the more than $1 billion worth of undertakings the company had already offered as benefits to Canada.
In the first public comments on why Ottawa blocked BHP, Canadian Industry Minister Tony Clement said it was partly because BHP has no expertise in potash mining and marketing, so it was not clear the deal would benefit Canada.
"BHP did not demonstrate to my satisfaction that their plans to market potash would enhance Canada's already prosperous position to compete internationally," he told reporters in Toronto after BHP withdrew its bid.
He acknowledged the rejection was controversial and said Canada continued to welcome foreign investment.
"Our government recognises, however, that there may be ways to improve the review process," Clement said.
Canadian Prime Minister Stephen Harper said on Sunday the government would set out guidelines to clarify what major foreign investments would be acceptable.
Potash Corp said it was vindicated in its decision to reject BHP's offer of $130 a share as too cheap and was in a strong position to grow on its own.
BHP said it would continue to pursue its Jansen potash project in Canada, which would be the world's biggest single potash mine.
"We remain committed to Canada and we plan to develop a significant presence in the potash industry in Saskatchewan," Kloppers said.
BIGGER BUYBACK
Investors and analysts said BHP's share buyback came as no surprise, although the timing was a bit sooner than expected.
BHP reactivated the remaining $4.2 billion of a $13 billion buyback it put on hold in 2007 when it launched a bid for rival Rio Tinto.
Shareholders who have been clamouring for a capital return said the $4.2 billion was a good start but said the company, which has $12.5 billion in cash on hand and gearing of just 6 percent, could afford to return much more.
"As a result we would expect an increase in dividends and possibly further buybacks over the coming year or so," said James Bruce, a portfolio manager at Perpetual Investments, the 10th-largest investor in BHP's Australian shares.
BHP could return $10-$15 billion, CLSA analyst Hayden Bairstow predicted.
At 2355 GMT, BHP shares were up 0.3 percent at A$44.44 and in line with the broader market, with analysts saying a share buyback had already been priced in since Ottawa vetoed BHP's bid for Potash Corp.
Potash Corp closed down 1.4 percent on Friday.
BHP will book $350 million in costs for the Potash Corp deal, with about 70 percent of that reflecting the costs of the $45 billion financing facility it had lined up for the deal.
Kloppers has long said the company would prefer to spend its cash pile on development projects and acquisitions rather than giving it back to investors.
Shareholders will be eager to hear what further growth prospects the company will chase with its cash pile when he fronts the group's annual meeting in Australia on Tuesday.
Shareholders continued to back Kloppers, despite his having had to abandon the Potash bid, the Rio Tinto bid in 2008, and an iron ore joint venture with Rio Tinto last month that would have yielded $10 billion in savings.
"Marius continues to run the company in an extremely efficient manner. The fact that he's been unable to consummate a couple of deals doesn't change our view on his ability to manage the company," Perpetual's Bruce said.
Investors and analysts blamed regulatory or political factors and not any failure by BHP for wrecking the deals.
The failed Potash Corp deal is a blow to the investment banks advising BHP: JP Morgan, Royal Bank of Scotland and Barclays.
Potash Corp was advised by Bank of America Merrill Lynch Goldman Sachs and RBC Capital Markets. - Reuters
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