18/08/10 - 8.27am - by James Gerrish
BHP Billiton (BHP) made a $US38.56 Billion bid for Canada's Potash Corp last night showing that companies are looking to put money towards growth. For those that are interested, Potash is the common name for Potassium Carbonate and about 93% of the worlds reserves are used in fertilizers as it improves water retention - Potash Corp is the world’s largest fertilizer company.
Potash Corp has rejected the bid and BHP may need to go hostile or raise the bid substantially (towards $US150 per share). BHP could fund the deal by debt given it has one of the lowest net debt to net debt plus equity ratios in the industry at 15.1% as of the end of 2009. BHP's gearing ratio would rise to about 30% if the company upped the offer to $US150 a share (from the current $US130).
BHP already has a Potash asset with its Jansen project (slated to produce 8 million tonnes by 2026) and the deal would give BHP access to Potash Corp's Burr project which is next door to Jansen - promoting synergies. An interesting proposal (long shot) from BHP and one that might see the stock under pressure in the near term. Longer term, I think its a great play and further leverages BHP to growth in emerging markets if they can pull it off.
Incitec Pivot (IPL) is a local producer of Fertilizer and could be in focus today as the market prices in some takeover premium.
On the market last night, the DOW JONES added +103 points or +1.01% to close at 10405. The FTSE 100 added +74.45 points or +1.41% to 5350. Locally, the SPI Futures contract is pricing a modest rise of 10 points on the open after our strong day yesterday.
Risk came back on the table last night, with commodities rising, the USD falling and Treasury Yields up 7 basis points. The move into Treasuries (Government Bonds) has been a key discussion point over the last week or so. Traditionally, Treasuries are a safe haven asset and the significant flow of funds into this asset class has been a major talking point. Demand for Treasuries increases in times of uncertainty and at the current Yields (around 2.63%) it seems to be pricing in a double dip scenario. We don't expect this to play out and we think that Treasuries are incorrectly pricing such a probability. Why buy a 10 year treasury generating 2.63% instead of Aussie stocks that are yields 6% with potential for capital gain over the longer term?
A number of company reports out today including Boral (BLD), Centennial Coal (CEY) Connect East (CEU), CSL Limited (CSL), The Reject Shop (TRS), Woodside Petroleum (WPL). Let me know if you'd like an over view of any of these results.
