Whom Will BHP Billiton Court Next?

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If you ask me, the effort by Australian mining giant BHP Billiton (NYSE: BHP  ) to spend $38.6 billion for Canada's PotashCorp (NYSE: POT  ) is as dead as a doornail.

When Potash's board reacted with a quick rejection of its opening gambit, BHP "went hostile," appealing directly to the target company's shareholders. Since then, and while the proposed deal has been traveling along the Canadian regulatory road, there have been discussions in a variety of quarters regarding the possibility of a rival bid from China's Sinochem, or from a group of sovereign funds, or even from miners Rio Tinto (NYSE: RTP  ) or Vale (NYSE: VALE  ) .

It was a requirement of the process that, in order to gain Canadian regulatory approval, BHP needed to demonstrate that its proposed combination would provide a net benefit to Canada. But even after offering a number of concessions during negotiations, the miner clearly wasn't able to accomplish that.

So this week, with the deal strongly opposed by Saskatchewan Premier Brad Wall, along with three of his peers in other provinces and lots of other Canadians, it wasn't particularly surprising when Industry Minister Tony Clement turned thumbs-down on it. BHP officially has 30 days to effect a change of sentiment in Canada, but you clearly can put a fork in the potential for a combination, and the major question now becomes one of where BHP goes next.

Opinions are like navels: Everyone seems to have one. But since you've asked, let's examine mine -- my opinion, that is. First, despite all of its obvious strengths, BHP hasn't had the world's best deal-making record of late. Not long ago, regulators in Asia and Europe quashed its planned iron ore joint venture with Rio Tinto. And in 2008, an outright acquisition of Rio was also dispatched.

Beyond that, however, it seems that there are at least a couple of viable directions available to the company, both of which assume that it will stick with its greenfield Jansen Project potash mine in Saskatchewan. First, it might further assuage its potash pangs -- something it apparently now shares with Vale and Rio -- and make overtures to Mosaic (NYSE: MOS  ) or Potash One, for starters.

Otherwise, it could choose to expand its copper or aluminum presence by making eyes at the likes of Freeport-McMoRan (NYSE: FCX  ) or Alcoa (NYSE: AA  ) , something I've thought was a possibility for a while. Regardless of which direction it might select, I'd expect it also to continue its global oil and gas expansion.

BHP may have been rebuffed, but it's hardly out of luck. It remains very much the solid company it was before it showed its wallet off in Canada. On that basis alone, it should remain a favorite of Foolish investors.         

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We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Fool contributor David Lee Smith doesn't own shares, either above or below ground, in any of the companies named above, The Motley Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 06, 2010, at 4:15 PM, goalie37 wrote:

    BHP is a great company, regardless of the current CEO being 0 for 3 at making a buyout. My problem is valuation. I find it hard to make a case for the stock at $92. If it goes too much higher, I will be forced to sell.

  • Report this Comment On November 07, 2010, at 4:02 PM, kempten wrote:

    These are irresponsible speculations. They are not substantiated in any meaningful way. For instance, Alcoa has significant finished products presence and how is this fitting into BHP business model? With the BHP size and operations scale they are better off adopting a "optimizing operations, buying into attractive biz.fitting model opportunities, becoming a white knight by offering superior corporate culture" approach.

  • Report this Comment On November 08, 2010, at 10:07 AM, marpincan wrote:

    IMO - Ivanhoe Mines is also a strong possibility to draw BHP's interest. Huge low cost copper/ gold deposit in Mongolia on property BHP initially owned but sold. production to start in 2013.

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