BHP to Post Near-Record Profit, Driving $39 Billion Potash Bid
BHP to Post Near-Record Profit
Ian Waldie/Bloomberg
Chief Executive Officer Marius Kloppers is seeking to add potash mines to metals, coal and energy units, betting on surging demand for fertilizer as global food needs grow.
Chief Executive Officer Marius Kloppers is seeking to add potash mines to metals, coal and energy units, betting on surging demand for fertilizer as global food needs grow. Photographer: Ian Waldie/Bloomberg
Aug. 25 (Bloomberg) -- Colin Whitehead, equity analyst at Fat Prophets, talks about the outlook for Australian stocks. Whitehead also discusses Australia's deadlocked election and its implications for the country's financial markets, the prospects for the U.S. economy, and BHP Billiton Ltd.'s takeover bid for Potash Corp. of Saskatchewan Inc. Whitehead talks from Sydney with Bloomberg's Rishaad Salamat. (Source: Bloomberg)
BHP to Post Near-Record Profit
BHP Billiton Ltd. via Bloomberg
Higher prices for copper, nickel and aluminum have boosted profit after last year’s earnings plunged as the global recession sapped demand for raw materials.
Higher prices for copper, nickel and aluminum have boosted profit after last year’s earnings plunged as the global recession sapped demand for raw materials. Source: BHP Billiton Ltd. via Bloomberg
BHP Billiton Ltd., the world’s largest mining company, may post a near-record annual profit tomorrow, helping to drive its $39 billion hostile takeover offer for Potash Corp. of Saskatchewan Inc.
BHP, which announced a bid for Potash Corp. last week, will post net income of $13.3 billion for the year ended June 30, according to the average estimate of 15 analysts compiled by Bloomberg. That compares with last year’s $5.9 billion and 2008’s record $15.4 billion.
Higher prices for copper, nickel and aluminum have boosted profit after last year’s earnings plunged as the global recession sapped demand for raw materials. Chief Executive Officer Marius Kloppers, 47, is seeking to add potash mines to metals, coal and energy units, betting on surging demand for fertilizer as global food needs grow.
“We’ve seen a very healthy recovery across a lot of different commodities over the past few months,” Charles Kernot, an analyst at Evolution Securities Ltd. in London, said by phone. “Clearly the company’s overall financial strength will be a focus given its tilt at Potash Corp. and so people are going to be looking to see how much the company could borrow.”
BHP, based in Melbourne, has arranged $45 billion of loans for its bid, the most debt to finance a takeover since February 2008.
Higher Profit
The company will join competitors Anglo American Plc, Xstrata Plc, Vale SA and Rio Tinto Group in reporting an increase in profit in the past month as the economic recovery pushes up commodity demand and prices.
BHP will probably post higher earnings from its petroleum, aluminum, base metals, diamonds and stainless-steel materials units, according to a UBS AG report yesterday. Profit at its iron ore and coal divisions will be lower after prices fell, UBS said.
Kloppers, who initiated a hostile takeover bid for Rio Tinto in 2007 just 39 days after he took over as CEO, is now seeking to win over shareholders of Potash Corp., the world’s biggest fertilizer maker. Potash is a form of potassium mined in Canada, Brazil, Germany and the U.S. and used to help boost crop yields by improving the ability of plants to withstand dry soil.
Kloppers was forced to scrap the $66 billion offer for London-based Rio in 2008 because of falling commodity prices and Rio’s debt.
“The problem with BHP, as I see it now, is that 70 percent of mergers are value destructive,” said Frank Lucas, a director of London-based fund manager and adviser Loeb Aron & Co., which holds BHP shares. “I don’t think BHP has quite understood the magnitude of what they are taking on and they are paying full whack for it.”
Biggest Acquisition
A purchase of Potash Corp. would be BHP’s biggest since buying WMC Resources Ltd. in 2005. BHP Billiton was created through the takeover of Billiton Plc by BHP Ltd. for $11.6 billion in 2001. Since then, BHP increased sales fourfold to $50.2 billion in the year through June 2009. That trailed the fivefold sales growth of Rio, the third-biggest mining company, over the period, while Anglo American posted a 41 percent gain.
BHP advanced 0.5 percent to 1,830 pence in London trading yesterday. The stock has dropped 6.8 percent since Aug. 16, the day before Potash Corp. said BHP made a $130-a-share offer. The bid is a 16 percent premium to Potash Corp.’s closing price on Aug. 16. Potash Corp. shares have jumped about 35 percent over the period, signaling investors expect a higher bid.
Stock Reaction
“The bid for Potash Corp. is likely to weigh on BHP’s share price in the short term, particularly as the rejected offer may need to be upwardly revised,” UBS analysts Olivia Ker and Glyn Lawcock said yesterday.
Potash Corp., based in Saskatoon, Saskatchewan, has described the offer as “grossly inadequate” and said yesterday it began talks with other companies. It has received initial inquiries from China’s Sinochem Group and Brazil’s Vale SA about the possibility of holding discussions, according to a person with knowledge of the matter.
“If there was one good thing about the low-ball offer that BHP put in, it shined an incredibly bright spotlight on the value that is Potash Corp.,” Bill Doyle, CEO of the Canadian company, said yesterday in an interview. “And people get it; they see it. We’re seeing a lot of interest in our company.”
Buying Potash Corp. would give BHP six potash operations as well as phosphate and nitrogen facilities. The company also has investments in four rival potash producers valued at about $8 billion, according to UBS.
BHP could dispose of about $13 billion of Potash Corp. assets to give it capacity to boost its offer, UBS said on Aug. 19, citing phosphate and nitrogen units and listed equity stakes.
To contact the reporter on this story: Jesse Riseborough in London at jriseborough@bloomberg.net.
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