REJECTED BHP Billiton's bid to take out Potash Corp

OK, this was a BIT of a surprise, Investment Canada, who had only turned away one deal in the last 25 years have REJECTED BHP Billiton's bid to take out Potash Corp. Wow. It was always going to be the shareholders, in my opinion that would ultimately decided this, I did not expect a no vote, that was a surprise of sorts. I had read a day or two ago from a research report that the only other deal turned down by Investment Canada was a deal from the outside to acquire a satellite military technology company of sorts. So, this deal suggests to me that food security is right up there with Military technology.



What now for Marius Kloppers? Two unsuccessful overtures in the direction of Rio Tinto and then this Potash Corp. failure, which was perhaps the most compelling of the lot. Back to the knitting I guess. BHP Billiton have thirty days to come back and change the minds of the authorities but I guess not too much to say really. No clear reason has been given as of yet, but we would expect clarity in time, perhaps after the final decision at the beginning of December.



I wonder how the board must be feeling, a little tired and disappointed. Even if they (BHP) turn up with a sweetner of sorts, remember that the majority of shareholders are actually American, so there would not be anything beneficial for the people of the province, or Canada. So the short term impact for the BHP Billiton price is a rally of sorts on the basis that they won't overpay for the asset, because they won't be able to. As they don't have the opportunity too, and as I said before the board must be feeling more than a little deflated.




The biggest shareholder, Blackrock, have been calling on the company to embark on another share buyback program. Bloomberg of course suggests that this might happen ---> BHP May Turn to Buybacks After Kloppers' Offer for Potash Corp. Blocked That of course enhances earnings not only in the short term, but more so in the long run. In Australia the capital gains taxes are pretty hefty, but a Federally approved buyback comes with perks for both the seller and the buyer. And even a discount of sorts for the buyer, in this case BHP Billiton, because of the capital gains tax break for the seller.



In my world it is a little narfy really, a share buyback, companies use internal resources to reduce the number of shares in issue, and in the future report on less shares. So earnings are enhanced in years to come, depending of course on how many shares they buy back. Plus it gives an underpin of sorts to the share price, if the company is participating in the open market. It kind of feels like you are going for the run chase, lose a few wickets and then close up shop and decide to go for the draw. A hollow victory. Nevertheless, having said all of that, we continue to buy the shares on the basis that they are cheap on a forward basis. Increased volumes and elevated commodity prices are all a good outcome for BHP Billiton.