Kloppers won’t fall into the bid trap

BHP chief executive Marius Kloppers was determined yesterday to play down fears that he is about to over-pay for PotashCorp, the Canadian fertiliser group.

As Kloppers unveiled healthy annual results, most people’s minds were focused on what he had to say about the group’s pursuit of Potash, for which he has made a $39bn bid.

Different times require different tactics, and that applies to mergers and acquisitions as well as anything else.

In the heady days of the 1980s, for example, the City loved a deal junkie and flocked to back the likes of Lord Hanson and Williams’ Holding’s Nigel Rudd.

Obviously investors were concerned at the kinds of premium being paid to take companies out, but in the main they trusted management to get it right.

But the financial crisis we have just been through has changed all that. The careers of men such as Sir Victor Blank and Sir Fred Goodwin took a turn for the worse after they were considered to have made ill-judged acquisitions.

Then there is the case of Tidjane Thiam at the Prudential whose $35bn proposed acquisition of AIA had to be aborted due to a lack of support from investors.

With markets as nervous as can be and with sentiment clearly against the macho deal-doer, Kloppers could be forgiven for emphasising he won’t overpay for Potash.

He was keen to dampen down speculation there would be a host of other bidders for the Saskatchewan-based fertiliser group, something that might lead to the price being ramped up. “This is the only bid on the table,” he said.

In the next few days Kloppers will embark on a globe-trotting roadshow where he will canvass shareholders about the bid.

He has not had an opportunity between Potash’s rejection last week and yesterday’s results to meet the Saskatchewan-based company’s management.

My guess is that he will reassure investors he won’t get into some crazy bidding war but that he might be prepared to up his $130 a share bid a touch in return for an agreed deal. Moving to $140 a share would not break the bank. The bid at current levels, for example, is worth just two and a half years of BHP’s cash-flow.

I’m fairly convinced that if there is an auction, Kloppers will walk away if he thinks he has to. And he will be well regarded for doing that.



DOUBLE DIP

There’s been so much conjecture about whether we’re headed for a double dip recession and yet nobody really is any clearer about it now than they were a few weeks ago.

Each set of economic data is pored over voraciously by analysts and the media alike in an effort to make sense of where the world economy is going. And yet....

Today on page 12, Dan Corry, former economics adviser to Gordon Brown, sets out his thoughts on the circumstances that face the coalition government and concludes that many of the events – most of them outside the UK, such as the outcome of the Eurozone crisis – which will determine success or otherwise for the chancellor George Osborne lie outside his control. Somehow that doesn’t sound too comforting.

david.hellier@cityam.com

Allister Heath is away