BHP Billiton shareholders have called on chief executive Marius Kloppers not to rush into further blockbuster acquisition attempts after the miner spent $350m (£217m) on its aborted bid for Canada’s PotashCorp.
BHP, which on Monday formally scrapped its $39bn pursuit of the fertiliser producer after the Canadian government blocked the deal, said it would restart its $13bn share repurchase scheme. But the world’s largest mining company is expected to continue seeking ways to diversify through takeovers.
A number of top-10 BHP investors told the Financial Times that a buy-back plan was either always their preferred option over the PotashCorp bid, or a way to redistribute its $12bn cash pile that would have been welcomed whether or not the deal completed.
Several shareholders also argued that BHP should put any further plans for transformational acquisitions on hold for the moment, citing the $350m in fees – $250m of which were for the $45bn in debt financing arranged by BHP’s banks – as a hefty price for a failed deal.
“Marius is clearly committed to a strategy of large-scale mergers and acquisitions, but the message needs to get across to him to strongly reconsider whether that is always in the best interests of investors,” one shareholder said.
“I do not want them to be trawling around the world forever trying to find ways of spending my money – the company needs to get the message now, as a lot of shareholders are saying they are flogging a dead horse.”
BHP, according to its 2009 annual report, incurred costs of $357m relating to its failed hostile bid for Rio Tinto, making the PotashCorp approach the second time that an unsuccessful takeover has incurred transaction fees larger than the market capitalisations of many midsized mining companies.
Another shareholder said: “$350m is a very large figure for something that has never really got off the ground. If you can execute [transformational deals] then fine, but to do them effectively is very hard, so they need to be careful.”
BHP’s decision to drop the bid had been anticipated widely by the company’s investors and analysts, who for two weeks have been speculating about what target the company might chase next.
In investor meetings before the Potash bid was unveiled Mr Kloppers said BHP was interested in oil and gas, agricultural fertilisers and platinum group metal assets.
The company’s belief in diversification across the commodities may focus its attentions on its oil and gas business, whose value as a counter-cyclical buffer was apparent in BHP’s earnings stability through the financial crisis.
Some investors have argued that the company should increase its buy-back programme – of which $4.2bn of a $13bn planned spend remains – or pay a larger dividend. But others expressed concern over BHP spending too much of its spare cash, as the collapse in commodities prices in the second half of 2008 forced indebted rivals such as Rio Tinto and Xstrata into emergency equity issuance.
“Ultimately, the cash belongs to shareholders, whether it stays in the company or is given back,” an investor said. “But people need to remember that strong balance sheets proved very valuable in the dark days of 2008.”
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