BHP blows US$800M on failed bids

A couple of loose ends were tied in the mining world during the second week of November.

• BHP Billiton formally withdrew its hostile, US$40-billion cash offer for Potash Corp. of Saskatchewan after the Canadian government had rejected it two weeks earlier on the grounds that it did not provide a “net benefit” to Canadians, heeding the loud protestations of Saskatchewan Premier Brad Wall and a groundswell of opposition in the province. Of paramount concern to the provincial government was BHP Billiton’s indifference to the long-established Canpotex export-sales cartel, and the company’s willingness to drive down potash prices as it maximized mine output.

The federal government had left open for BHP a 30-day window to improve its bid, but that was just a formality, as BHP had already made many substantive concessions relating to increased taxes, vows to maintain employment levels, and commitments to remain in Canpotex for five years, and to centre its potash business in Saskatchewan.

Clearly, BHP Billiton execs spent too much time with their noses in their spreadsheets and were unable to grasp the enduring strength of Prairie populism in Canada. And BHP paid a full price for its lesson, tallying US$350 million in transaction costs for the failed bid, of which US$250 million will be recognized in the half year ending Dec. 31.

Providing some support to BHP’s share price was a simultaneous announcement that the company would resume its suspended, US$13-billion share-buyback program, having US$4.2 billion left to spend.

Will this also end Marius Kloppers’ three-year reign as BHP Billiton’s CEO? Kloppers already failed with two huge deals: the audacious bid to buy Rio Tinto, which fizzled at the onset of the global recession; and the plan to combine BHP and Rio’s iron ore assets in Western Australia, which was blocked by European regulators on competition grounds.

BHP has now spent an astounding US$800 million on these three failed ideas.

Following BHP’s recent annual meeting in Perth, Australia, chairman Jac Nasser defended Kloppers in front of gathered journalists, and argued that the questionable M&A decisions were the responsibility of the entire board.

The Sydney Morning Herald reported that, while no one brought up Kloppers’ performance during the annual meeting, Kloppers “appeared nervous as he addressed shareholders and stumbled over his words.”

But BHP remains deeply involved in the fertilizer business in Canada, with its enormous, $12-billion Jansen greenfield potash project in Saskatchewan awaiting development. The company’s measured tone and self-discipline throughout the PotashCorp bid bodes well for a good relationship with folks in Saskatchewan going forward.

• The Agoracom fraud saga came to a close, with the Ontario Securities Commission (OSC) adding new allegations to its list of charges against Agoracom Investor Relations Corp. and its two founders, George Tsiolis and Apostolis (Paul) Kondakos just before a final settlement hearing in Toronto on Nov. 12.

In its newest allegations, the OSC described how Agoracom’s website for mining and other retail investors included a “private messaging” service which ostensibly allowed users to have “direct and private contact with other Agoracom members.”

The OSC stated that from July 2008 to February 2009, “Kondakos intercepted private messages sent between public users for the purpose of gathering information about reporting issuers and issuers, in which he was personally invested.”

Furthermore, the OSC said Kondakos “forwarded private messages to a personal friend who was not associated with Agoracom and provided this individual with administrative access to the Agoracom website. This individual also intercepted private messages between public users, and forwarded these private messages to Kondakos.”

In its original charges filed in April, the OSC alleged Kondakos and Tsiolis instructed their employees to post, using 670 aliases, a total of 24,000 overtly promotional comments about client firms to each firm’s discussion forum from September 2006 to July 2009.

In the settlement, penalties meted out by the OSC included: various 5-to 10-year bans for Tsiolis and Kondakos from acting as fund managers, directors and officers in the financial markets; specific trading bans; and payments totaling $150,000 as a reprimand and to cover investigation costs.