BHP Billiton's bid for PotashCorp puts communication skills to the test
It’s interesting that the sudden uptick in corporate finance – and especially M&A – activity has focused all eyes on China. Perhaps IROs should take heed of both aspects of this week’s news since they could well have implications for both the amount and nature of their future workloads.
The powers that be at BHP Billiton could so easily have given their IR team a pleasant and peaceful time – simply by forgetting their expansionist plans and releasing the company’s really quite stunning results. Not only were annual profits up nearly 70 percent on last year, they had the added benefit, in IR terms, of being in-line with forecasts.
But now, instead of being able to bask in the reflected glory of corporate success and enjoy the smiles on the faces of their shareholders, BHP’s IR pros in Australia, the UK and the US will be experiencing what, by common consent, is the most challenging time an IRO ever faces. In this particular case, there are not only shareholders to win over all around the world, but also Canada’s government and populace. And there may yet be competition from other bidders in other countries.
But if they would have preferred a quiet life, the IROs at the Anglo-Australian mining giant should have chosen an employer in a different sector. This is where China comes in. Not only has China – together with the other fast-growing BRIC economies – been a real spur to growth in the sectors in which BHP operates, one of its state-owned enterprises, Sinochem, may yet show specific interest in bidding for PotashCorp.
It would hardly be surprising. The Chinese government has been warned by a think tank that the country’s reliance on imports may in due course threaten its long-term growth and strategic needs. And while one of the government’s stated aims is to become self-sufficient in agriculture, right now it’s importing around half of the potash it needs.
So China could yet prove to be a double-edged sword for BHP. Its IROs will be arguing in favour of the bid on a number of bases, including fast-growing consumption by China. But if China does bid, for exactly the same reason, that will risk pushing the price of PotashCorp to a level that may be unacceptable to BHP’s shareholders. The price currently stands at some $39 bn, a manageable sum for a company whose results on Wednesday showed it generating $17.9 bn in cash flow from operations and a gearing ratio of 6 per cent.
But what about Canada? Is the prospect of PotashCorp’s ownership moving away from Canada a matter of concern? And if it’s to happen, would they prefer a company from another Commonwealth country buying their resources? Or is Chinese ownership just fine? Potash IROs will no doubt argue for continuing Canadian ownership, if only in the interests of getting the purchase price as high as possible. But as one local was reported as saying, his only concern is to have an owner likely to invest in future mining operations in Saskatchewan. After all, as this wise bird pointed out, whether the new owners are Australian or Chinese, they can’t take the asset away.
As I leave the UK for a vacation in Italy, I hope the teams at BHP Billiton, PotashCorp and any other companies yet to bid, in the words of the old Chinese curse, will experience ‘interesting times’. May you all rise to the respective challenges and live to tell the tale.
