MELBOURNE BHP Billiton scrapped its $39 billion bid for Canada's Potash Corp and bowed to calls from investors to return cash, a move that came days after regulators blocked the year's biggest takeover deal.
BHP, conceding defeat for the third straight time on a major proposed merger or acquisition, signaled with its revived $4.2 billion share buyback that it had limited opportunities for other big buys.
The world's largest miner's shareholders are eager to hear what further growth prospects the company will chase with its cash pile when BHP Chief Executive Marius Kloppers fronts the group's annual meeting in Australia on Tuesday.
"Certainly the best investment is probably in themselves at the moment," said Brendan James, a partner at BHP shareholder Perennial Growth, referring to the prospect of a bigger buyback.
Canada blocked BHP's hostile bid for the world's largest fertilizer maker on November 3 and gave BHP a month to prove the takeover would benefit Canada.
"Unfortunately, despite having received all required antitrust clearances for the offer, we have not been able to obtain clearance under the Investment Canada Act and have accordingly decided to withdraw the offer," BHP Chief Executive Marius Kloppers said in a statement.
It will be tough for the world's largest miner to chase other major buys, given its size and dominance in most of its markets.
"I think the regulatory environment is very difficult to negotiate when you are as big as BHP," said Tim Schroeders, a portfolio manager at Pengana Capital, which owns BHP shares.
Analysts said BHP may look at takeovers in the petroleum sector since it is only a mid-sized player in that industry and would be less likely to run into competition hurdles.
"For us the two most obvious potential targets are Woodside Petroleum and Anardarko Petroleum, while outside of oil and gas we also feel an acquisition of Freeport would have its merits," said Dominic O'Kane at Liberum Capital in London.
BHP will book $350 million in costs for the Potash Corp bid, mainly due to $45 billion financing facility it lined up.
The failed Potash Corp deal is a blow to the investment banks advising BHP: JP Morgan, Royal Bank of Scotland and Barclays. Potash Corp was advised by Bank of America Merrill Lynch, Goldman Sachs and RBC Capital Markets.
NO CLEAR BENEFITS
BHP said Ottawa was asking for too many concessions beyond the more than $1 billion worth of undertakings the company had already offered as benefits to Canada.
In the first public comments on why Ottawa blocked BHP, Canadian Industry Minister Tony Clement said it was partly because BHP lacked expertise in potash mining and marketing, so it was not clear the deal would benefit Canada.
"BHP did not demonstrate to my satisfaction that their plans to market potash would enhance Canada's already prosperous position to compete internationally," he told reporters in Toronto after BHP withdrew its bid.
He acknowledged the rejection was controversial and said Canada continued to welcome foreign investment.
"Our government recognizes, however, that there may be ways to improve the review process," Clement said.
Canadian Prime Minister Stephen Harper said on Sunday the government would set out guidelines to clarify what major foreign investments would be acceptable.
Potash Corp said it was vindicated in its decision to reject BHP's offer of $130 a share as too cheap and was in a strong position to grow on its own.
Shares of Potash Corp have traded consistently above the bid price, closing at $139.91 on Friday.
BHP shares in London, which have gained more than 20 percent since the offer was unveiled in August, were up a further 1.4 percent by 1340 GMT. Shares of Potash Corp were down nearly 1 percent at $138.70 in trade before the morning bell in New York.
Gleacher & Co analyst Edlain Rodriguez said the pressure is now on Potash Corp's Chief Executive Bill Doyle to deliver.
"After arguing that the $130-a-share bid undervalued the company, Bill will definitely need to unlock value in the company," said Rodriguez. "Investors will hold management responsible if they cannot get the stock to a much higher price."
Shareholders continued to back Kloppers, even though he spent $875 million on three abandoned deals: the Potash bid, the Rio Tinto bid in 2008, and an iron ore joint venture with Rio Tinto last month that would have yielded $10 billion in savings.
"Marius continues to run the company in an extremely efficient manner. The fact that he's been unable to consummate a couple of deals doesn't change our view on his ability to manage the company," said James Bruce, portfolio manager at Perpetual Investments, the 10th-largest investor in BHP's Australian stock.
BHP said it would pursue its Jansen potash project in Canada, which would rank as the world's biggest single potash mine.
BHP's share buyback came as no surprise, although the timing was a bit sooner than expected. It reactivated the remaining $4.2 billion of a $13 billion buyback put on hold in 2007 when it bid for rival Rio Tinto.
Shareholders who have been clamoring for a capital return said it was a good start but said the company, which has $12.5 billion in cash on hand and gearing of just 6 percent, could afford to return much more.
BHP could return $10-$15 billion, invest in growth projects and still make acquisitions, analysts said.
(Additional reporting by Mark Bendeich in SYDNEY, Euan Rocha and Jeffrey Hodgson in TORONTO and Eric Onstad in LONDON; Editing by Jean Yoon, Lincoln Feast and Hans Peters)