Canada blocked BHP Billiton’s $39 billion bid for Potash Corp and left little room for a modified offer, throwing the spotlight on how the world’s largest miner can find new avenues for growth.
Canada said the deal would not benefit the country, delivering a major blow to BHP chief executive Marius Kloppers after the 2008 failure of a $120-billion-plus bid for rival Rio Tinto and the collapse of a $116-billion iron ore joint venture with Rio earlier this year.
BHP investors are betting the Anglo-Australian miner will now return capital through a share buyback or expand its interest in oil and gas to put its growing cash pile to work.
While Canada gave BHP 30 days to come up with additional proposals that might make its hostile bid for the world’s largest fertiliser producer more palatable, the chances of a successful modified offer appeared remote.
“Marius Kloppers is going to be pretty frustrated. BHP is of a size now where just about anything it wants to do of any substance is going to get blocked on regulatory grounds,” said Cameron Peacock, market analyst at IG Markets in Melbourne.
The move left some investors in Potash fuming after many had piled into the shares expecting a sweetened bid.
“We are quite angry because the decision will probably prevent us from unlocking the value (in Potash Corp),” said Lionel Melka, a portfolio manager with hedge fund Bernheim Dreyfus in Paris. “This is purely a political decision, it is pure protectionism.”
While investors expect BHP to look at a buyback or a special dividend, analysts also said the miner could increase its exposure to oil and gas using an estimated $11 billion warchest.
The Canadian decision was only the second time the nation has blocked a foreign takeover since 1985, sparking criticism the minority Conservative government was putting politics before business.
Under the Investment Canada Act, a foreign takeover must benefit the country in terms of jobs, exports, production and investment. Reuters