Business NEWS

BHP Billiton Ltd = the new GM

By Amarendra Bhushan for CEOWORLD Magazine Updated:November 26, 2008

Now BHP just needs to fall in kind to reflect the reality that most of their mines are fast becoming uneconomic, aside from the ones that are already being shut as they are losing them earnings per share! (BHP = the new GM)

You guys missed the most amazing fact: how can a failed takeover bid that lasted a mere six months cost $450 million? Are M&A lawyers really that expensive?

I guess if they dont rush, once arcelor-mittal implodes from too much debt they will buy that company and agin no one can stop.

BHP Billiton Ltd. is well placed to embark on an acquisition drive after abandoning its US$70 billion bid for Rio Tinto Ltd. (RTP), while analysts say another tilt at Rio itself can’t be ruled out. With its relatively healthy cashflow and balance sheet, BHP looks to be in the strongest position of any of the global mining majors to start another leg of acquisitions.

However, its management may be tempted to return cash to shareholders in the short-term to smooth any dissatisfaction over the failed bid, which would also give BHP time to better assess the impact of the global economic slowdown on its businesses. BHP Chief Executive Marius Kloppers has left the door open to acquisitions and indicated the rout on equity and commodity markets is creating opportunities.

“As this situation in the world economy is unfolded, there will, no doubt, be some players in this industry that won’t come out of this unscathed, and we will have to continue to look at those opportunities,” Kloppers said Tuesday, after announcing he had pulled the bid for Rio.

“The world is their oyster,” said BlackRock Inc. (BLK) fund manager Evy Hambro, who holds both BHP and Rio shares. “They have an enviable balance sheet and they have a market filled with companies with a very low valuation, but I would expect them to look at their own shares for a start.” BHP generated US$18.2 billion in net operating cashflow in fiscal 2008 and had US$4.2 billion in cash as of the end of June. Its current debt level is US$6.5 billion, and although cashflow has been crimped since by the decline in commodity prices, the prices of some of the junior mining stocks that might be on its shopping list have been hit just as hard.

However, there are no targets that would offer anything like the US$3.7 billion in annual synergies presented by the Rio deal, largely based on bringing together the two miners’ iron ore operations in the Pilbara region of Western Australia.

A combination of the two miners has been canvassed at BHP for many years and Ord Minnett analyst Peter Arden said it is still possible that it could be revisited at a later date.

“I personally think they may well have another go at Rio down the track because the prize is so big and the synergies were going to be so compelling,” he said.

Just a little side note on the bid, originally valued at $150 billion, thus the $450 million equates to roughly 1/333 of the total bid value. Look at Spotless Enterprises failed bid on Programmed this past summer, their annual report shows that the bid of $510 million cost them $14.3 million, a ratio of 1/35. I think that based on this kind of ratio analysis the BHP bid was obviously managed more efficiently!

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