BHP Billiton, the world’s biggest miner, fired a warning shot to its takeover target Potash Corp and potential counterbidders, showing off its best half-year profit in two years and a hefty balance sheet.
BHP, with a US$39 billion hostile offer out for the top global fertilizer maker, said it was cautious on the short-term global outlook and that the economy in China, its biggest customer, would slow from recent highs.
“Following a broad recovery in prices for the majority of BHP Billiton’s products, the short term outlook for commodities is mixed,” the company said yesterday in announcing its results.
But BHP is still in a strong position to raise its Potash offer, as widely expected, with US$45 billion in debt lined up and annual cash flows of US$24.5 billion. The group’s net debt fell to US$3.3 billion, with net gearing down to a mere 6 percent.
BHP chief executive Marius Kloppers is set to face questions from investors and analysts in London about the US$130 per share bid, launched a week ago.
Shareholders are worried about the risks BHP is taking on, expanding into a market it has never served, as it aims to tap an expected boom in demand for potash from farmers trying to boost crop yields to feed fast-growing countries like China and India.
First-half net profit before one-offs rose to US$6.77 billion from US$4.59 billion a year earlier, in line with analysts’ forecasts of about US$6.9 billion.
“I have to say it’s probably a very welcome result with very little to worry about,” said Ric Ronge, portfolio manager at Pengana Capital.
“BHP could probably go up to close to A$200 [US$177] a share [in its Potash Corp bid] ... In the absence of another bidder for those assets, BHP is doing the right thing in the sense it’s basically offered a price ... and is waiting for a response,” he said.
One key question for shareholders is whether BHP is willing to raise its bid by more than 22 percent, which would require it to seek approval from its own shareholders for the deal under UK rules.
BHP also plans to ask a Canadian commission to end Potash’s poison pill early if the bid appears likely to receive regulatory approval, sources familiar with the matter said.
Such a move would force the Canadian company to work faster as it seeks to line up a white knight to fend off the bid.
BHP’s bumper profits came as the US Securities and Exchange Commission (SEC) charged two Spanish residents with insider trading in Potash shares before BHP announced its bid.
The SEC alleged that the Madrid, Spain, residents, one of whom was an equities derivatives trader with BHP adviser Santander, made nearly US$1.1 million in profits using material nonpublic information to illegally trade Potash securities before the BHP announcement.year profit in two years and a hefty balance sheet.
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