A surge of global protectionism has hamstrung the world's biggest mining company, but BHP says it has no plans to retreat from the pursuit of top-tier resource assets.
During the brief tenure of chief executive officer Marius Kloppers, BHP has attempted to seal three blockbuster multibillion-dollar deals in the past two years. Every one of them has died.
BHP chairman Jac Nasser blames the company’s dismal M&A record on a rising tide of protectionist sentiment across the globe that has emerged in response to the global financial crisis.
“The world is changing, whether you want to call it protectionism or nationalism,” Mr. Nasser told reporters after the company’s annual general meeting in Perth. “But there is certainly a trend towards a more difficult process when you're looking at larger cross-border transactions.”
The economic downturn has heightened regulatory scrutiny for major acquisitions and contributed to the string of failed deals attempted by the Australian mining giant. Amid threats of a global currency war, an increase in protectionist sentiment and the subsequent decrease in foreign direct investment could add to the world’s economic challenges.
Under the guidance of Mr. Kloppers, BHP has spent $875-million (U.S.) in the past two years on the pursuit of three major deals that it failed to close.
This week, BHP killed its hostile bid for Potash Corp. of Saskatchewan Inc., 11 days after Ottawa ruled that the proposed $38.6-billion hostile takeover would not be a “net benefit” to Canada.
BHP abandoned the bid after the government demanded it explicitly commit to building its own early stage potash development project in Saskatchewan – an estimated $10-billion investment decision that BHP was unprepared to make at such an early stage of development. Ottawa also wanted BHP to commit to selling its potash production through the Canpotex marketing arm “indefinitely,” according to sources close to BHP.
The Potash rejection followed the European Union’s decision to block a proposed combination of BHP’s iron ore mining assets with those of U.K. rival Rio Tinto PLC. Before that, BHP abandoned a full takeover bid for Rio Tinto at the height of the economic downturn.
“It is a natural reaction that governments and society will have when things are difficult,” said Mr. Nasser, adding that he hopes the rise in protectionist sentiment will prove to be a short-term issue rather than a “long-term structural shift.”
Critics now say that BHP, the sixth-largest company in the world with a market value approaching $250-billion, may have become too big to execute its strategy of acquiring top-tier resource assets as governments and regulators push back against major mergers and takeovers.
Mr. Nasser suggested that had BHP attempted to buy Potash or execute the iron ore joint venture with Rio Tinto several years ago, “it would have been a different process.”
But the BHP chairman dismissed reports that it will now refashion its acquisitions toward smaller, more manageable targets.
“We're not about to change from transactions that potentially involve tier-one assets ... to go after second-tier, lower-quality acquisitions,” Mr. Nasser told shareholders. “Don't look to us to be chasing smaller acquisitions of lower quality.”
Speculation is now rampant that BHP may set its sights closer to home on Woodside Petroleum Ltd., which is Australia’s largest oil company. Mr. Kloppers declined to comment on whether he is interested in the company. Ironically, the Australian government blocked an attempted takeover of Woodside in 2001 by the UK’s Royal Dutch Shell PLC on the grounds that the oil producer was a strategic resource.
In Perth on Tuesday, Mr. Kloppers appeared unfazed by Ottawa’s surprise rejection of his company’s attempt to acquire Potash Corp.
Striding in to the meeting, he was approached by a sympathetic shareholder offering condolences for the Canadian government’s crushing decision.
Forcing a smile, Mr. Kloppers attempted to play down the significance of having the world’s premier fertilizer assets slip through his grasp.
“It would have been nice,” he said.