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BHP Billiton yanks bid for PotashCorp

Saying there’s no way it could fulfill Canada’s definition of a “net benefit,” global mining giant BHP Billiton has walked away from its play for control of fertilizer giant PotashCorp.

In a release dated Monday (Nov. 15), the British/Australian mining firm said it had determined “the condition of its offer relating to receipt of a net benefit determination by (federal Industry Minister Tony Clement) under the Investment Canada Act cannot be satisfied.”

Emphasizing that it will continue with its own previous plans to mine potash in Saskatchewan, BHP said it will eat the US$350 million it has spent so far on the PotashCorp bid — made up mainly of about US$250 million to cover the costs of arranging a US$45 billion financing facility.

Responding briefly via press release Sunday, Saskatoon-based PotashCorp said Billiton’s decision “underscores” the potash firm’s belief that the hostile bid “substantially undervalued PotashCorp and failed to reflect both the value of our premier position in a strategically vital industry and our future growth prospects.”

Billiton’s decision follows Clement’s announcement Nov. 3 that he was “not satisfied that the proposed transaction is likely to be of net benefit to Canada.”

Clement had added that Billiton could make “further representations and undertakings” over the following 30 days before he made a final decision, the mining firm said.

“Unfortunately, despite having received all required anti-trust clearances for the offer, we have not been able to obtain clearance under the Investment Canada Act and have accordingly decided to withdraw the offer,” Billiton CEO Marius Kloppers said in the company’s release Sunday.

“We remain committed to Canada and we plan to develop a significant presence in the potash industry in Saskatchewan. As part of those plans we will continue to progress our Jansen project and other development opportunities.”

Political opposition to Billiton’s unsolicited US$130-per-share proposal has also been fierce, spearheaded by Saskatchewan Premier Brad Wall.

Much of Billiton’s release Sunday was dedicated to a list of undertakings the company said it would have made in the province had its bid been allowed to proceed, including:

  • establishing the company’s global potash headquarters in Saskatoon;
  • a “unique commitment to forego tax benefits to which it was legally entitled;”
  • a five-year membership commitment to Canpotex, the joint export agency for Saskatchewan potash producers PotashCorp, Agrium and Mosaic;
  • relocation to Saskatchewan and Vancouver of over 200 additional jobs from outside Canada;
  • maintaining operating employment at PotashCorp’s Canadian mines at current levels for five years;
  • increasing overall employment at the combined Canadian potash businesses by 15 per cent over the same period;
  • US$450 million on exploration and development over the next five years over and above commitments to spending on the Jansen project;
  • another US$370 million for infrastructure funds in Saskatchewan as well as in New Brunswick, where PotashCorp operates a potash mine at Sussex;
  • applying for a listing on the Toronto Stock Exchange (TSX);
  • pledges for Saskatchewanian and Canadian participation in senior management roles within the proposed combined potash business, within a new potash advisory board and also on the board of BHP Billiton;
  • “full and fair opportunity” for local suppliers to provide goods and services to the company;
  • at least US$8 million per year on community programs, mainly in Saskatchewan and New Brunswick, while “raising overall community spending from PotashCorp’s current levels to BHP Billiton’s levels;”
  • investment in the University of Saskatchewan to create a Mining Centre of Excellence; and
  • an “unprecedented monitoring and compliance regime that would have provided the government with additional assurances that the undertakings would be complied with, including making available a US$250 million performance bond.”

Given the reasons underlying Clement’s Nov. 3 decision, the mining firm said it believes the minister “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.”

Billiton on Sunday also announced it plans to reactivate the remaining US$4.2 billion component of its previously suspended US$13 billion buyback program.

“The decision to reactivate the buyback program is entirely consistent with our commitment to maintain an appropriate capital structure while we continue to make substantial investments in our growth projects,” Billiton chairman Jac Nasser said in the same release.

For its part, with Billiton’s takeover bid off the table, PotashCorp said Sunday it believes “our opportunity for growth in the industry is unmatched and we are excited about the future.

“As the food requirements of our growing global population continue to increase, we believe PotashCorp has the right strategies in place to enhance earnings in the strong market conditions we see unfolding.”

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