BHP to face buyback pressure as Potash bid fades

[] — ANGLO-Australian miner BHP Billiton’s boss is likely to face calls next week for a massive share buyback when he confronts shareholders in Australia after his third straight failure to pull off a major acquisition.

CEO Marius Kloppers’ latest deal, a $39bn bid for Potash Corp, appears headed for the scrap heap, after Canada all but vetoed it, leaving investors focused on the company’s $12.5bn warchest of cash and what to do with it.

Kloppers is not expected to pronounce the Potash Corp bid dead when he addresses the group’s annual meeting in Perth on Tuesday – he has until December 3 to try and change Ottawa’s mind – but investors have already written off any hope of a deal.

“It’s all over,” said James Bruce, portfolio manager at Perpetual, which owns BHP shares and opposes the Potash Corp bid.

BHP Billiton’s hostile offer is due to expire on November 18. Even if it opts to extend the offer, some investors do not believe the miner can persuade Canada to reverse its opposition and some major shareholders would prefer the bid to lapse.

“I’d like to see them scrap it. It would just clear the air,” said a partner at a fund manager that has a stake in BHP.

BHP Billiton’s shares have climbed 4.6% in a flat overall market since Ottawa’s decision a week ago, reflecting relief that the group did not go ahead with a risky deal and also expectations that it would return capital to shareholders.

Investors, including BHP’s biggest shareholder BlackRock, said it would make sense for the company to resume a share buyback that it put on hold three years ago, when it launched its failed takeover offer for Rio Tinto.

They see the company returning $5bn to $10bn to shareholders over the near term. BlackRock and Perpetual say it should run a continuous buyback to manage its capital, while also retaining the flexibility to fund any acquisitions.

“Given the forward projections on cash flow, the balance sheet and the capital required for investing in growth, an ongoing buyback and significant increase in dividend is appropriate,” said Perpetual’s Bruce.


Shareholders are due to vote on renewing BHP’s authority to resume a share buyback of up to 10% of the company’s London-listed stock at Tuesday’s meeting, but the notes to the meeting say the firm has no current plan to resume the buyback.

Some back BHP’s aim of spending its cash on development projects and acquisitions ahead of returning any to shareholders, and would not mind seeing it extend its offer for Potash Corp if there was any hope of salvaging the bid.

“The bid’s a strategic move positioning the company for the next 50 years,” said Tim Schroeders, a portfolio manager at Pengana Capital, which owns BHP shares.

“To pull it ahead of the AGM is just pandering to a vociferous minority who just care about the next five minutes and boosting their own woeful returns,” he said.

There are regulatory and court decisions pending in Canada and the United States tied to the Potash Corp bid that could lead BHP to extend its offer by a month. All those decisions would be moot if BHP saw no chance of Ottawa lifting its block on the bid.

BHP has until Decmber 3 to try to persuade Ottawa to reverse its ruling, but Canadian politicians have made it clear that there is virtually no chance of that happening.

“All I can tell you is that I’m satisfied that my decision is the right decision,” Canadian Industry Minister Tony Clement, who has the final say, told Reuters in an interview last week.