from Breakingviews:
Blocking BHP’s Potash bid could damage Canada
Blocking BHP's move on Potash Corp could be damaging for Canada. The government will decide by Wednesday whether to allow the $39 billion deal to proceed. A BHP takeover might squeeze the tax the fertilizer giant pays its home province. But those costs are outweighed by the discount that the country's companies would suffer if Canada was deemed to have turned protectionist.
Under the Investment Canada Act's broad remit, foreign investments must be a net benefit to the country. The government must weigh factors like the impact on jobs, competition, productivity, the ongoing participation of Canadians in the business, and the country's ability to compete in world markets.
In BHP's case, there is no impact on competition. While the Anglo-Australian miner plans to run the business differently if it takes control, its proposals are not that radical. Even if Potash Corp remained independent, a different management team could follow a similar path to BHP.
The bid does throw up some genuine concerns about the impact on Saskatchewan, where Potash Corp is based. The province estimates the takeover could reduce tax revenues by C$3 billion over a decade. Two-thirds of the hit would arise if BHP used tax credits from developing its own potash assets to shelter Potash Corp's income. The rest would be the result of piling acquisition debt onto its target. BHP is willing to ensure there is no tax impact, though foreign acquirers in Canada have a poor track record of keeping their promises.
However, blocking the deal would have broader repercussions. The danger is that investors would view Canada's mining sector as takeover proof, which would hit share prices and increase financing costs. It could also make Canada less attractive for other miners. Last year, mining companies raised $22 billion of equity capital in Toronto for projects in Canada and abroad—34 percent of mining equity capital raised worldwide. If the government was vague about the reasons for its decision, other Canadian companies might also be viewed as enjoying protection from a change of ownership.
If the Canadian government wants to capture a greater share of its natural resources it can do so through the tax system. But if it wants to maintain its image as an open market, Canada cannot afford to stand in the way of BHP's bid.
from Breakingviews:
Waiting game may favor BHP in Potash battle
BHP Billiton is playing a waiting game. The longer regulators take to approve the miner's $38.6 billion offer for Canada's Potash Corporation of Saskatchewan, the more time there is for a rival bid to emerge. Yet any white knight is bound to face similar scrutiny. BHP's one-month head start in the lengthy process could prove to be a tactical advantage.
To be successful, the Anglo-Australian miner's bid must get past competition authorities in Canada and the United States. It also needs to win approval from foreign investment bodies including Investment Canada and the Committee on Foreign Investment in the United States.
Canada's competition regulator has already asked for more information, forcing BHP to extend its $130-per-share offer for Potash Corp. by a month. If the U.S. competition authority follows suit, the process could drag into next year.
BHP's current business doesn't overlap much with the fertiliser group. But the Canadian authorities probably want to examine the impact of the miner's plan to leave Canpotex -- the North American potash marketing cartel -- and sell its output independently. As a large importer of potash, the U.S. antitrust body is also bound to look closely at the deal.
Any delay would appear to favour Potash Corp's efforts to drum up other bids. Yet rivals would need to go through the same process as BHP. And lawyers believe that regulators would prefer to look at different buyers in turn, rather than examining them in tandem. That could play into BHP's hands.
With Potash Corp's New York-listed shares currently hovering around $148, BHP will have to boost its offer at some stage. But if it is the first to obtain regulatory approval, BHP will have a window in which it can offer Potash Corp shareholders a greater level of certainty. Any rival would have to offer a steep premium to stay in the race.
BHP's progress with regulators also puts pressure on Potash Corp's board. The Canadian group remains confident that other offers will emerge. But as time passes, the board may eventually decide that negotiating with the miner is its best hope of squeezing out a higher price.
from Breakingviews:
BHP shows it doesn’t need Potash Corp
BHP Billiton has shown it doesn't need to buy Canada's Potash Corp. The Anglo-Australian miner's impressive annual results are a reminder of the financial firepower behind its $39 billion hostile bid for the world's largest fertiliser group. But they also show that BHP is not broken -- and that chief executive Marius Kloppers does not need to bet a strong balance sheet on further diversification.
The miner can clearly afford to pay more than the $130 per share offer that it has taken directly to Potash's shareholders. BHP generated EBITDA of $24.5 billion in the year to June 30, up 10 percent, driven by record production in oil and iron ore. At the end of the financial year, gearing stood at just 6 percent.
Still, BHP has yet to make a compelling strategic case for buying Potash. The miner is already sufficiently diversified by customer, commodity and geography to have delivered its sixth consecutive year of 40 percent plus operating margins despite the global financial crisis. The offer for Potash, if successful, would deprive BHP investors of a significant potential cash return.
With an increasing correlation between commodities and associated equity plays over the past two years, it is hard to see how BHP benefits by adding a tenth division. Potash might even be worth more standalone than within the miner, argues Citigroup, which says the fertiliser group would have increased the volatility of BHP's earnings on a historic basis. So much for the benefits of extra diversity.
BHP has said it will remain financially disciplined, and its current bid doesn't look overpriced. If the miner raises its offer to the $150 level where Potash's New York listed shares are now trading, it will need to seek the approval of its own shareholders. BHP's shares trade on a forward price to earnings ratio of 7.4 times, a slight premium to the sector. Given Kloppers' advantageous position, the temptation to let discipline slip will be strong. But he can also afford to walk away should Potash's shares run away from him. If he wants to avoid turning BHP's premium into a discount, he must be prepared to do so.
Fuzzy Logic? What’s bad for Live Nation and Ticketmaster isn’t bad for business
Britain’s Competition Commission did an about-face last night, giving its blessing to the proposed merger of live music giants Live Nation and Ticketmaster. What’s nearly as surprising as the reversal is the starkly negative reasoning behind the decision.
UK regulators had said in October they was concerned about the move to combine the world’s largest concert promoter with the leading ticketing group, saying fans could wind up paying more to see their favorite artists. Certainly artists, fans and politicians have been lined up against the deal, so the backbone to resist the merger seemed solid enough.
But on second thought, the Commission said the new entity would not have the incentive to hurt rivals, in particularly an existing partner of Live Nation’s. “We found that, in most of these cases, the merged entity would suffer significant and immediate losses, with very uncertain prospects for long-term gain … Therefore, we concluded that it was unlikely that the merged entity would harm other ticketing agencies, promoters and venues in these ways.”
So they decided to clear this unpopular merger because they don’t think it will work? I guess the logic is sound. What’s bad for the industry is probably good for consumers as ticket prices may drop. But there’s no guarantee of that. In fact, if they can’t squeeze profit out of the merger, they may have to raise prices. That could be good for the competition, but not consumers.
With a little momentum behind them, and apparently in the same vein of the absurd, the two groups said they remained optimistic there would be a similarly successful outcome in the U.S. and Canada, in line with approvals in Norway and Turkey.
IMS deal shows life, if not strength, in leveraged buyouts
(Recasts lead)
If a deal can’t get done with the backing of Canada’s pension fund and capitalism’s mightiest bank, then the leveraged buyout market would truly be dead.
So it is with limited fanfare that DealZone welcomes the buyout of IMS Health by Canada’s public pension plan and Goldman Sachs as a sign of the market’s return to health. Green shoots in the LBO patch are hardly growing all jack-and-the-beanstalk, but putting together $4 billion for the prescription drug sales data provider is not just ice on the moon either.
Excluding debt, the $22-a-share cash deal is the biggest leveraged buyout since Bristol-Myers Squibb sold its ConvaTec unit to Avista Capital and Nordic Capital just over a year ago for $4.1 billion, according to data from Thomson Reuters.
Financing markets and general optimism have improved from the nadir of the crisis, and debt, if you can find it, is hardly expensive, with core rates at zero. But $4 billion pales in comparison with strategic deals in the health space this year, such as Wyeth’s $68 billion union with Pfizer.
It is safe to say, though, that had the IMS deal foundered, it would have been a far worse signal for LBOs than its success means for the relative health of the business.
Is oil heating up?
Energy M&A has heated up over the past few weeks, with two large deals possibly on the horizon: the sale of Repsol’s Argentine unit YPF as well as Kosmos Energy’s stake in the Jubilee oil field in Ghana.
If thise deals would happen, it would follow Suncor Energy’s $20 billion takeover of rival Petro Canada, announced earlier this year.
So is M&A in the oil sector heating up? Maybe, but insiders warn that the fluctuations in oil and gas prices could slow the flow of deals.
Historically, crude oil has tended to trade between 9 to 11 times natural gas prices. But with crude at around $60 a barrel and natural gas at around $3.35 per million british thermal units, that ratio is currently 18 times natural gas prices.
That suggests gas prices will go up or crude prices will go down. If oil prices drop, then assets that on the market could be pulled, and the M&A market could cool fast.
Agrium CEO makes a plea for kindness
“Be kind in your article. I read this morning I wasn’t going to get the deal across,” said Agrium CEO Mike Wilson, referring to an article in Canada’s Globe and Mail about his company’s hostile bid for rival fertilizer maker CF Industries. “What the hell is that?”
Speaking on the sidelines of a BMO Capital Management agriculture, protein & fertilizer conference, Wilson said he was frustrated by CF’s unwillingness to discuss his company’s bid, but “frustration won’t make us go away.”
Agrium bumped its cash-and-stock bid for CF to around $85 a share on Monday, increasing its previous bid more than 6 percent.
“At $85, I can’t believe (CF CEO Steve WIlson is) not going to come to us and say let’s talk,” Agrium’s Wilson said. “I’d be amazed.”
from MacroScope:
Canada dresses up for bears
For all the designer drinks and gourmet foods - from raw oysters to sushi, and the sea of men in expensive suits and bejeweled women in elegant gowns, the setting seemed fit only for celebration.
But dressed as they were to the nines, investors attending "A Night with the Bears" at Toronto's upscale Elgin Theatre, were eager to hear the worst, on the edges of plush seats amid predictions of market doom from some of the continent's savviest financial minds.
"I only wish we'd sold tickets," said a smiling Eric Sprott, arguably Canada's best known hedge fund manager and chairman at Sprott Asset Management Inc, as he looked out at the 1,500 or so crowd.
In a media room below stage, journalists were held equally rapt by the star speakers after being treated to a hand-operated elevator ride.
Once there, rows of chairs slowly filled as smartly-dressed servers roamed the dimly-lit space offering drinks to journalists briefed quickly.
The message?
When an economic recovery takes place -- and it won't take place any time soon -- it's going to be a weak and shallow recovery.
…and $3 Billion is not chump change to a province of only 1 million people.