Wednesday, October 27, 2010

BHP digs us a hole

Don't say this blog didn't warn you.

From the SMH today, BHP's Potash bid is in deep trouble:

Saskatchewan's premier said Australia wouldn't approve of BHP Billiton's foreign takeover of Potash Corp and Canada shouldn't either.

Premier Brad Wall continued to step up the pressure to make sure Canada's federal government blocks what would be the world's largest takeover this year.

Wall noted that Australia considers whether a proposed investment may result in an investor gaining control over market pricing and production, and said a particular concern to them is the extent to which it would allow an investor to control the global supply of a product.

Wall said it just isn't in the strategic interest of Canada to allow a foreign takeover of a company that controls more than 25 per cent of the world's reserves of potash.

"Given the size of this deal Australia would say no," Wall said in an interview with The Associated Press.

Wall said Australia's foreign investment review process spells out some of the very same concerns they have been using to assess BHP's bid.

These are precisely the problematic terms that this blogger outlined a couple of weeks ago. And it gets worse:
Opposition Liberal leader Michael Ignatieff urged the government to reject the deal in Parliament on Tuesday and noted four former leaders of Saskatchewan are against the deal. Government House leader John Baird responded by saying they would block the deal if it's not a net benefit to Canada.

Two Saskatchewan ministers, including Energy and Resources Minister Bill Boyd, met with the federal government on Monday. Wall said the federal government is looking very carefully at the deal and at the position of the provincial government.

...But Wall reiterated on Tuesday that his stance is not a bargaining position and that BHP can't overcome his concerns about a foreign company controlling more than 25 per cent of the world's supply of potash in Canada.

Looks like the local governor is going to take the heat off the national government in rejecting the bid.

You can hardly blame Canada for having misgivings. BHP has proved itself incapable of responsible behaviour in monopoly markets. For those interested in some history around this try The Diplomat.

If the bid is rejected, then it marks two turning points so far as this blogger is concerned. First, this will be Marius Kloppers' third attempted monopoly play in as many years. It's becoming an expensive habit (roughly a billion dollars wasted). He should either get back to running a business instead of a vested interest or give someone else a go.

Second, the big miners' greed is now doing the Australian national interest explicit harm. Getting into alternative commodities like potash makes a lot of sense long term but if the miners are going to be rebuffed because of their history of gouging then Australia is going to face a devil of a time weaning itself from its iron ore and coal dependency. We're being boxed in.

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