Anadarko Petroleum Ltd. and Woodside Petroleum Ltd. may be acquisition targets for BHP Billiton Ltd. after its $40 billion offer for Potash Corp. of Saskatchewan Inc. was blocked by Canada, UBS AG said.
Riversdale Mining Ltd., closely held U.S.-based coal company Drummond Co. and another large-scale potash producer may be other potential targets, UBS analysts led by Glyn Lawcock said yesterday in a report. BHP may also undertake a $10 billion share buyback, he said.
Canada this week blocked BHP’s offer for the world’s largest fertilizer company, saying the deal wouldn’t provide a “net benefit” to the country. Melbourne-based BHP has 30 days to appeal the government’s decision.
“We believe key issues were the strategic nature of Potash and the estimated C$2 billion （$1.9 billion） in lost royalties to Saskatchewan,” UBS said. “According to press reports, Saskatchewan has asked BHP for an upfront C$1 billion payment to recoup the lost royalties, which BHP has failed to agree to.”
Woodside, Australia’s second-largest oil and gas producer, is 34 percent-owned by Royal Dutch Shell Plc, which may be willing to team up with BHP to take Woodside private, UBS said.
“BHP Billiton has clearly shown a preference to buy rather than buyback,” Citigroup Inc. analysts led by Clarke Wilkins said yesterday in a report. “Market share issues constrain options in iron ore and coking coal, industry fundamentals would rule out aluminum and nickel, leaving oil and copper as the most likely. Copper is the market’s darling base metal, but quality world class M&A opportunities are limited, particularly for a company of BHP Billiton’s size. This leaves oil.”
The risk in an oil acquisition is that it will skew BHP’s production portfolio towards energy, Wilkins said. “This may not be a problem in the Australian market, but where there is choice in the U.K. for both pure mining and oil it becomes a risk. The fallback accretion from a buyback is also highly attractive - $15 billion would be about 10 percent accretive.”
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