BHP Restarts Buyback After Scrapping $40 Billion Potash Bid

BHP Billiton Ltd., the world’s largest mining company, restarted a share buyback after abandoning its $40 billion cash offer for Potash Corp. of Saskatchewan Inc. following Canada’s rejection of the bid.

BHP will reactivate the remaining $4.2 billion part of its suspended $13 billion buy-back program, the Melbourne-based company said today in a statement. BHP said it couldn’t satisfy the net benefit requirements under the Investment Canada Act. It had 30 days to appeal after Canada’s Nov. 3 rejection.

Prime Minister Stephen Harper’s government said a sale of the world’s largest fertilizer company wouldn’t provide a “net benefit” to Canada. BHP may spend as much as $25 billion buying back shares in the next two years in place of the Potash deal, according to Morgan Stanley.

The buy-back “probably isn’t as much as some people had wanted,” said Tim Schroeders, who helps manage about $1 billion at Pengana Capital Ltd. in Melbourne, including BHP shares. The scrapping of the deal is “probably indicative that they went pretty hard in terms of meeting the original deadline and didn’t really have a Plan B or any wriggle room to move forward,” he said.

BHP Chief Executive Officer Marius Kloppers had obtained $45 billion of loans in September to fund the proposed acquisition, which met with opposition from politicians and investors. The failed bid will incur a transaction cost of about $350 million, BHP said.

Canadian Presence

“The company believes that the minister of industry would have required additional undertakings beyond those BHP Billiton had already offered which would have conflicted with BHP Billiton’s business strategy and been counter to creating shareholder value,” BHP said in the statement.

Potash Corp. spokesman Bill Johnson didn’t immediately respond to call from Bloomberg outside of regular office hours.

It’s the third time Kloppers, 48, has failed to consummate a deal in the past two years after scrapping a hostile bid for Rio Tinto Group in 2008 and a joint venture with the same company last month. He spent $450 million on the Rio takeover, according to the company. He also outlaid $75 million on the venture with Rio, the Australian Financial Review reported.

“BHP probably need to reassess their M&A strategy,” Pengana’s Schroeders said. “The regulatory environment is proving more difficult than they originally assessed and that may be due to the sheer size of the deals that they’re proposing.”

Possible Targets

In bidding for Potash Corp., the world’s biggest producer of the crop nutrient, Kloppers, who took on the top job in 2007, was seeking to benefit from surging demand for fertilizer as food needs grow and the list of possible company targets shrinks. The acquisition would have been BHP’s biggest since buying WMC Resources Ltd. in 2005 and the largest takeover this year.

Anadarko Petroleum Ltd. and Woodside Petroleum Ltd. may be acquisition targets for BHP, UBS AG said Nov. 5. Riversdale Mining Ltd., closely held U.S.-based coal company Drummond Co. and another large-scale potash producer may also be potential targets, it said.

BHP’s most recent completed purchase was Athabasca Potash Inc. for about C$341 million （$339 million） in January. It paid A$204 million for United Minerals Corp. in October 2009.