NG giant BHP Billiton could be left with a diplomatic crisis on its hands if it does not move swiftly to address growing investor disquiet over the cost of the company’s mammoth $40bn (£26bn) hostile bid for Canadian fertiliser giant PotashCorp.
BHP will this week attempt to calm shareholder fears at a gruelling series of roadshows across the globe, organised in line with its full-year results.
Its efforts come after the first investors broke ranks to shoot down the deal. Last week, one of the company’s largest Australian investors, Perpetual, said the firm should launch a share buy-back in place of the acquisition of PotashCorp.
BHP’s UK shareholders will prove equally difficult to convince of the rationale for a deal, particularly given fears over the cost of financing the takeover through debt alone.
George Godber, a fund manager at Matterley who reduced his holding in the stock sharply when the bid was announced, said there is widespread scepticism over the deal among institutional investors in the City.
“BHP Billiton is a wonderful company and very well run,” he said. “But with the amount of debt the company is taking on, it is paying a very full multiple for PotashCorp. I am a big strategic bull on agricultural consolidation, but I’d much prefer to see them do a $20bn buyback and buy something smaller. $130 per share doesn’t feel like a knock out price and the danger is that BHP will have to pay up if it really wants these assets.”
Speculation over a potential “white knight” counter-bid for the Canadian company focused at the weekend on China, after state-owned chemical group Sinochem said it would pay “close attention” to BHP’s bid. PotashCorp already owns a 22 per cent chunk of Sinochem’s fertiliser subsidiary Sinofert.
Analysts expect further interest from Chinese companies as the bid battle heats up, while rival miners Vale and Rio Tinto have also been touted as potential – though less likely – candidates to propose a tie-up.