Ever since November 4th, when the Canadian government rejected the proposed takeover by BHP Billiton plc (NYSE: BHP) of Potash Corp. (NYSE: POT) of Saskatchewan, Inc., the writing has been on the wall. In fact, the writing was already there in outline following the rejection of the deal by the provincial government of Saskatchewan, which said that the acquisition provided no “net benefit” for the province or for Canada.
BHP finally got the message, and has today withdrawn its $38.6 billion offer to buy Potash Corp. BHP spelled out all the actions it was prepared to take if the deal had been allowed to go through, and noted that the steps it was willing to take were “unparalleled in substance, scope and duration.” The company had drawn a line in the sand, and when it became clear that no concessions would serve to get the deal done, BHP picked up its marbles and went home.
To sweeten the bitter pill for its shareholders, BHP also announced that it would buy back $4.2 billion in stock under its previously suspended $13 billion buy-back program. BHP is also on the hook for $350 million in transaction costs for the failed bid. BHP will also continue development of its own potash mine in Saskatchewan, currently set to begin shipments in 2015.
The failed bid may also be the swan song for BHP CEO Marius Kloppers, who has now been unsuccessful in three attempts since 2007to make a big deal. The first failure was the rejected bid of $140 billion to acquire Rio Tinto plc (NYSE: RTP), and then a failed $116 billion joint venture on an iron ore project with Rio Tinto. Kloppers does think big, you’ve got to give him that.
The opportunities for big thinking, though, may be getting scarce. There aren’t that many big moves a company like BHP can make without running into regulatory issues or without overpaying for an acquisition. Kloppers’s strategy since he took over at BHP has been to grow the company with a transformative acquisition.
That however, has not played all that well with shareholders, many of which prefer organic growth, share buybacks, or higher dividends. At BHP’s shareholder meeting on Nov. 16th, Kloppers is apt to get an earful.
BHP shares have risen nearly +2% in early trading this morning, while Potash Corp. shares are down less than -1%. Which is odd in itself. Potash Corp. shares traded at around $112 before BHP’s offer of $130/share came in. The shares jumped to around $150, and are still trading at more than $138/share. Sure potash prices have been strong, and are expected to get stronger, but $26/share is probably wishful thinking.
As of this writing, Paul Ausick did not own a position in any of the stocks named here.
