(Corrects item from Aug. 24 to make clear the increased bid
level that triggers the need for shareholder approval changes as
BHP's market value rises or falls)
* BHP likely to need shareholder ok if increases bid
* UK listing rules measure value of bid vs market value
By Eric Onstad and Michael Erman
LONDON/NEW YORK, Aug 24 BHP Billiton's (BLT.L)
(BHP.AX) hostile $39 billion bid for fertiliser group Potash
Corp (POT.TO) faces a potential obstacle -- formal approval by
its own shareholders -- if it sweetens its offer to the level
many investors are calling for.
That threshold based on UK listing requirements is likely to
come into any BHP deliberations on how much to sweeten its bid
for Potash Corp (POT.N), the world's biggest fertiliser company.
"Clearly it's easier for the company not to have go through
that whole process, BHP would want to do things as quickly as
possible," said analyst Charles Kernot at Evolution Securities
Under the UK listing rules, no shareholder vote is needed at
the current $130 per share offer since the total takeover price
does not equal more than 25 percent of BHP's total market
The market value is based on the share price the day before
the world's top miner BHP unveiled its offer, totalling about
If the bid was increased, the 25 percent threshold would
apply to BHP's market price on the day before the announcement
of the sweetener, making it a moving target.
As BHP shares decline, the price at which a shareholder vote
would be needed also falls. BHP stock has shed 9 percent since
the firm released details of its bid.
Based on Aug. 26 market prices, the requirement would kick
in if BHP increased its bid by 11 percent to about $145 per
share or $43 billion, according to Reuters calculations.
A Reuters poll showed Potash investors think BHP could
succeed with a higher bid of $162 a share, while many analysts
regard $157 as a winning offer. [ID:nLDE67J0PV]
"Putting yourself in the Never Never Land of a shareholder
vote? That's M&A 101 -- don't do it," said an investment banker
not working on the deal.
Analysts and investors say BHP Chief Executive Marius
Kloppers has a history of being cautious on M&A deals after he
walked away from a hostile bid for Rio Tinto (RIO.L) (RIO.AX) in
2008 during the global economic downturn.
"The board probably would prefer to avoid a shareholder
vote, but even if a vote is required it is likely that
shareholder approval would be given," said BMO Capital Markets
analyst Tony Robson.
For a summary of related stories, please double click on:
The issue of shareholder involvement in takeover processes
is a hot topic in Britain.
Kraft Foods Inc's KFT.N takeover of Cadbury, and the
failure of Prudential Plc's (PRU.L) bid for American
International Group Inc's (AIG.N) Asian arm, have helped fuel
debates in Britain about shareholder engagement.
Prudential's $35 billion bid collapsed in June, scuppered by
shareholder opposition to a deal that required their support
because it entailed a $21 billion rights issue. Some hailed that
as a new era of shareholder activism. [ID:nLDE6502FV]
In the wake of the Cadbury acquisition, Britain's takeover
watchdog started a consultation on a slew of potential changes
to the UK's merger rules, which could include raising the
minimum acceptance threshold for a bid from 50 percent plus one
The Institute of Directors (IoD), a lobby group representing
45,000 senior business people, has argued that any takeover of a
large listed UK company should require a vote by shareholders of
the acquiring company.
UK listing requirements provide four tests with a 25 percent
threshold to determine whether a company needs shareholder
approval for a takeover, including the one measuring the total
value of the transaction.
According to analysts, only one other test was close to the
threshold -- the gross capital test which measures the
enterprise value of the target company versus the acquirer.
The other two tests measuring gross assets and profits are
well below 25 percent, analysts added.
(Additional reporting by Quentin Webb in London; Editing by
David Holmes and Erica Billingham)