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On Potash, the morning after With a nod to The Guess Who, analysts believe there's still a strong chance that BHP Billiton Ltd. will indeed go runnin' back to Saskatoon in pursuit of Potash Corp. of Saskatchewan .
They're not counting out BHP chief executive officer Marius Kloppers, who wants desperately to get his hands on the Canadian resource jewel despite yesterday's setback.
Industry Minister Tony Clement announced last night that Ottawa was rejecting the proposed hostile bid for Saskatoon-based Potash Corp. as not being in Canada's best interests. BHP now has a month to come back with new commitments and try to change his mind, though it's not likely that it's going to bring Saskatchewan Premier Brad Wall onside. Mr. Wall has campaigned aggressively to block any sale of Potash Corp.
In rejecting the bid, Mr. Clement averted what would have been a nasty showdown with Saskatchewan. Or maybe he just delayed it, given many observers believe Mr. Kloppers will come back with a renewed assault. Here are some views:
"I still have complete faith in Marius Kloppers - he's coming up with ideas. He's aiming big and not buying these small bolt-on acquisitions. I don't expect them to go back for another bid." Chris Weston, institutional dealer at IG Markets in Melbourne, to Bloomberg News
"The market believes there is some likelihood BHP will return with a revised offer. "There is always this chance, though, in our view, BHP has twice demonstrated a relatively rapid willingness to walk away from deals facing regulatory opposition." National Australia Bank Ltd.
"It is quite a big blow - clearly Potash would have been, and still could be, a big acquisition, a strategic acquisition for the company. The real issue is that BHP is a very large company and to grow it needs to make big bets, big decisions." Peter Chilton, Constellation Capital Management Ltd., Sydney, to Bloomberg Television
"I'd still assign a greater than 50 per cent chance that the deal does go ahead under restricted terms. Canada prides itself on being investment friendly and this is the only second deal in 25 years they've effectively blocked." Tim Schroders, Pengana Capital Ltd., Melbourne, to Bloomberg News
"We believe the key issue was the financial impact to the Saskatchewan government from lower taxation. BHP may look to make larger concessions to appease these concerns, in order to win approval. However, our concern is that this is a highly politicized situation and there may be limited recourse for BHP." Brian MacArthur, analyst, UBS Securities Canada
"The probability of this being in BHP's favor is very low as it would be an abrupt about-face for Canada's ruling party," Morgan Stanley
"BHP may look to make larger concessions to appease these concerns. However, our concern is that this is highly politicized and there may be limited recourse for BHP." Olivia Ker, analyst, UBS AG, London
What does it mean for BHP?
BHP now has a lot of thinking to do. Has it grown so large that it has nowhere to go? And what to do with all that money? Some views:
"Marius Kloppers is going to be pretty frustrated. BHP is of a size now where just about anything it wants to do of any substance is going to get blocked on regulatory grounds." Cameron Peacock, market analyst at IG Markets, Melbourne, to Reuters
"It is hard for them (BHP) to deploy their money. What is available to them is their own shares." Evy Hambro, head of mining investments, Blackrock Inc., to Reuters
"Buybacks are always good," said James Holt, investment specialist at BlackRock. "If they dropped the bid and have all this extra cash on their hands and make a strong announcement what they're going to do with all their cash, you could see (BHP shares) rally quite a bit." James Holt, investment specialist, Blackrock, to Reuters
"If the deal eventually does get blocked and there's no other avenue, that would increase the likelihood of some sort of capital management program, be it a capital return or special dividend. I wouldn't be surprised if they up the acquisition strategy in the petroleum division." Tim Schroeders, Pengana Capital Ltd., Melbourne
What does it mean for Canada?
The danger, of course, is that foreign investors could now see an unfriendly environment, despite Ottawa's protestations that Canada is "open for business." Some observers think there could be a longer-term impact, while others expect no fallout.
Dennis Gartman, the publisher of The Gartman Letter, was particularly harsh today, calling the rejection "a truly stupid move" that will damage Canada's reputation.
"BHP was not going to 'move' Potash from Saskatchewan, and rather it was simply going to enrich [Potash]shareholders while forcing BHP to spend a huge sum of money enhancing the quality of life in and around the privince."
He likened the fears surrounding a Potash takeover to those in the United States in the late 1980s and early 1990s when Japanese investors went on a buying spree: "Were the Japanese suddenly going to take Rockefeller Center and move it to Tokyo? Of course not ... Harper has now made Canada a far less interesting place to invest."
Some other views:
"There are going to be issues raised over the next five to 10 years around access to natural resources, and particularly on trade issues and countries trying to control the export of natural resources, or trying to control pricing of natural resources -- countries like the United States, European Union and Canada, for that matter, that are already involved in WTO cases trying to keep a level playing field in terms of access to natural resources.'' Jay Myers, president, Canadian Manufacturers & Exporters, to Globe and Mail reporter Jeremy Torobin
"It's a nice victory for a very old man. There isn't a country in the world that would let this company go ... "I really deplored that Canadians are such kind people that they don't speak up when something terrible is being done to them. It took a lot of time for us to mobilize this opposition." Shareholder activist Stephen Jarislowsky, who teamed up with Calgary businessman Richard Haskayne to try to block the deal, to Globe and Mail reporter Janet McFarland
"We are quite angry because the decision will probably prevent us from unlocking the value (in Potash Corp.). This is purely a political decision, it is pure protectionism." Lionel Melka, porfolio manager, hedge fund Bernheim Dreyfus, Paris, to Reuters
"I think it comes as a shock to the market. I think it goes in the face ... of the direction of the government of Canada for the last number of years, which is we're open for business. Clearly, we're sending a signal that no, we're not." John Stephenson, senior vice president, First Asset Investment Management Inc.
"It's going to have some reverberations on Wall Street for five or 10 seconds and then things will go back to normal. It's not a sign of a change of policy for Canada, which is traditionally open to foreign investment. Brazil, India or China wouldn't allow the same takeover of their assets." Professor Stephen Clarkson, University of Toronto, to The Associated Press
- Ottawa decision surprised BHP
- Tories reject BHP bid for Potash Corp.
- Potash ruling casts doubt on foreign takeovers
- BHP willing to review its Potash offer
- Read our complete coverage of the battle for control of Potash Corp.
Fed decision sparks backlash The Federal Reserve's decision to try to boost its economy with plans to buy $600-billion (U.S.) in longer-term Treasurys sparked a quick backlash today from emerging economies already hit by tremendous inflows of money.
The Fed's plan is aimed at driving down longer-term interest rates because short-term rates can't go any lower. The idea is to juice lending and spending, though many economists believe the program over the next few months will have little impact.
The New York TImes reports today that policy makers in emerging markets such as Brazil and South Korea are now threatening to take additional steps to stem the flow of cash into their economies, which has driven up their currencies and raised fears over asset bubbles.
This plays into the currency cold war already playing out.
"With the Fed's decision now confirmed, there is a risk of a flare up in [foreign exchange]market tensions as various emerging market economies will be encouraged to 'import' a degree of U.S. monetary policy slack in order to prevent exchange rate appreciation," said Scotia Capital currency strategist Sacha Tihanyi.
"Indeed, the Indonesian central bank has kept rates on hold today (as expected), partly in order to keep pressure off of the rupiah, and the Malaysian central bank governor Zeti has commented today that regional central banks are vigilant on capital flows and can (and are willing) to act collectively if needed."
The emerging markets are not alone. Germany's Economiy Minister Rainer Bruederle also voiced concerns today over currency tensions. And France's FInance Minister Christine Lagarde told The Wall Street Journal that the move could help boost the euro.
Today, both the European Central Bank and the Bank of England kept their benchmark lending rates on hold.
- Fed chief takes a gamble on spending
- The spillover from the Fed's stimulus
- Fed prints the money, consumers pay the price
- Rob Carrick: It's time to ease into stocks
BCE profit dips BCE Inc. today posted a 5.4-per-cent dip in third-quarter profit, as chief executive officer George Cope said the company was facing an "increasingly competitive communications marketplace."
The company generated $528-million of profit and earnings per share of 70 cents, compared to $558-million and 72 cents during the same quarter last year, results that were below or in line with analysts' estimates, Globe and Mail telecom writer Iain Marlow reports.
However, BCE'S Bell Mobility unit posted a surge in lucrative "post-paid" wireless subscriber additions, many of which are smart phone customers, which were up 31 per cent. The company also saw a slight gain in revenues, which grew to $4.51-billion from $4.4-billion last year.
"Overall, we continue to prefer BCE given it provides the highest dividend yield among diversified large-cap companies in the space and valuations are not stretched, which should drive continued funds flow to the company as investors look to the sector for yield; we continue to forecast a further dividend increase in early 2011," said Desjardins analyst Maher Yaghi.
"Operationally, the company continues to execute with its best ever wireless subscriber growth (which had a slight negative impact on margins)."
Manulife loss widens Manulife Financial Corp. today reported a third-quarter loss of $947-million, or 55 cents a share, compared to a loss of $172-million or 12 cents a share a year earlier.
The loss of nearly $1-billion was actually a better performance than the Street had been expecting, with most analysts forecasting a larger loss.
Canadian insurers typically update their actuarial methods and assumptions on things like investment returns and interest rates in the third quarter, and that process has resulted in Manulife taking a charge of slightly more than $2-billion, The Globe and Mail's Tara Perkins reports.
In addition, Manulife took a $1-billion goodwill impairment charge because it revised its outlook for the U.S. insurance business.
Suncor profit tops $1-billion Higher production and strong prices pushed Suncor Energy Inc. just over the $1-billion mark in third-quarter profits.
The energy giant said today it earned 65 cents a share, compared to $929-million or 69 cents a year earlier.
"This was one of our strongest quarters for oil sand production in Suncor's history," chief executive officer Rick George said in a statement. "Reaching these volumes while also completing major planned maintenance demonstrates a solid foundation for reliable production going forward."
Air Canada profit dips Business travel is is helping Canada's biggest airline.
Air Canada said today its profit in the third quarter dipped to $261-million from $277-million a year earlier, when currency gains played a big role. Operating income surged to $327-million and passenger revenues climbed 13 per cent.
"Premium cabin revenues in the quarter accounted for almost one third of the total increase in system passenger revenues, underscoring Air Canada's strong position to capitalize on a rebound in business travel as the economy strengthens," said chief executive officer Calin Rovinescu.
Earnings parade continues Several other companies also reported third-quarter results today.
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