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BHP Restarts Buyback After Scrapping $40 Billion Potash Bid

BHP Billiton Ltd., the world’s largest mining company, resumed a share buyback after abandoning its hostile $40 billion takeover offer for Canada’s Potash Corp. of Saskatchewan Inc. in the face of government opposition.

BHP will purchase $4.2 billion of its shares under a $13 billion buyback program suspended in 2007, the Melbourne-based company said today in a statement.

Chief Executive Officer Marius Kloppers withdrew his offer for the world’s largest fertilizer maker after Prime Minister Stephen Harper’s government said on Nov. 3 it didn’t meet the requirements of the Investment Canada Act to bring “net benefits” to the country. It’s the third time Kloppers, 48, has failed to complete a deal in the past two years, notching up at least $800 million in transaction costs.

The buyback “probably isn’t as much as some people had wanted,” said Tim Schroeders, who helps manage about $1 billion at Pengana Capital Ltd. in Melbourne, including BHP shares. Scrapping the Potash deal indicates BHP “didn’t really have a Plan B or any wriggle room to move forward,” he said.

BHP, which could spend as much as $25 billion buying back shares, according to Morgan Stanley, fell 0.4 percent to A$44.14 at the 4:10 p.m. close in Sydney on the Australian stock exchange. The cost of protecting against a BHP bond default fell. Credit-default swaps on BHP dropped 5 basis points to 80 basis points as of 3:28 p.m. in Sydney, according to Australia & New Zealand Banking Group Ltd. prices.

Second Rejection

Potash Corp. spokesman Bill Johnson didn’t immediately respond to calls from Bloomberg outside regular office hours.

Industry Minister Tony Clement’s decision to block the deal was only the nation’s second rejection of a foreign takeover in the past 25 years. Clement told reporters in Toronto yesterday he rejected the bid in part because of concern BHP wouldn’t bring new expertise or increase production.

Under the Investment Canada Act, the government can block any transaction valued at C$299 million ($295 million) or more if it finds it doesn’t provide benefits to the country that include jobs, exports and investment. The government faced pressure from the province of Saskatchewan, which argued Potash Corp.’s sale would cut jobs and tax revenue and surrender control of an important resource.


“The company believes that the minister of industry would have required additional undertakings beyond those BHP Billiton had already offered which would have conflicted with BHP Billiton’s business strategy and been counter to creating shareholder value,” BHP said in the statement. BHP planned to spend at least $1 billion on investments and undertakings in Canada as part of the deal.

“This is the realization that there’s a low-to-no probability they can get a deal done at this time,” Louis Meyer, a New York-based special situations analyst at Oscar Gruss & Son Inc., said by phone. “It’s not surprising given the roadblocks thrown up, including price and regulatory rejection.”

Kloppers obtained $45 billion of loans in September to fund the acquisition, which was opposed by Potash management and some investors. The failed bid will incur a transaction cost of about $350 million, BHP said.

Standard & Poor’s Ratings Services today removed BHP’s “A+” rating from creditwatch with negative implications because the withdrawal reduced potential pressure on the company’s financial risk profile. The buyback “can be accommodated within the existing ‘A+’ rating,” Standard & Poor’s said in a statement.

‘Deal Kill’

JPMorgan Chase & Co. and nine other banks may lose an estimated $120 million in advisory fees, according to estimates by research firm Freeman Consulting. In addition to advisory fees, financing banks can get as much as $190 million to arrange loans, according to Freeman. Most of the loan fees may have already been paid, Freeman said.

“It was the way BHP approached both Potash Corp. and Canada that killed the deal,” Mark Connelly, a New York-based analyst with Credit Agricole SA, said in a telephone interview. “They turned this into a political issue by being so outright hostile to Canada.”

BHP had committed to spending $450 million over the next five years on exploration and development and $370 million on infrastructure funds in Saskatchewan and New Brunswick, the company said today. It would have applied to list on the Toronto Stock Exchange, foregone tax benefits and stayed a member of the Canpotex, the marketing company jointly owned by Potash Corp., Agrium Inc and Mosaic Co., for five years.

Investor Guidance

Kloppers, appointed CEO in May 2007, scrapped his hostile bid for Rio Tinto Group in 2008 and a joint venture with the same company was abandoned last month. He spent $450 million on the Rio takeover, according to the company. He also outlaid $75 million on the Rio venture, the Australian Financial Review said.

Canada plans to provide “guidance” to investors on what kinds of foreign takeovers it will tolerate, Harper told reporters yesterday at the Asia-Pacific Economic Cooperation summit in Yokohama, Japan.

In bidding for Potash Corp., the world’s biggest producer of the crop nutrient, Kloppers was seeking to benefit from surging demand for fertilizer as food needs grow and the list of possible company targets shrinks. The acquisition would have been BHP’s biggest since buying WMC Resources Ltd. in 2005 and the largest takeover this year.

Anadarko Petroleum Ltd. and Woodside Petroleum Ltd. may be acquisition targets for BHP, UBS AG said Nov. 5. Riversdale Mining Ltd., closely held U.S.-based coal company Drummond Co. and another large-scale potash producer may also be potential targets, it said.

New York-based JPMorgan, Toronto-Dominion Bank, Banco Santander SA, Barclays Plc, BNP Paribas SA, Royal Bank of Scotland Group Plc and Canadian Imperial Bank of Commerce were BHP’s advisers on the deal, according to data compiled by Bloomberg.

Potash Corp. was advised by Bank of America Corp., Goldman Sachs Group Inc. and Royal Bank of Canada.