James Gerrish - Morning Note - Thursday 19th August

19/08/10   - 8.31am   -  by James Gerrish 

BHP Billiton (BHP) has turned hostile in its attempts to take over Canadian based Potash Corp for around $US40 billion - roughly a similar size transaction when BHP attempted a merger with Rio Tinto (RIO). BHP has organised debt financing for the deal and is now approaching share holders directly with the offer. We expect BHP to be under pressure for the medium term at least until more clarity about the deal emerges. 

 The majority of major brokers have now pulled BHP from their No. 1 BUY in the sector replacing it with RIO.  I'm looking for BHP to trade back toward $36 and this looks like a distinct possibility. Citigroup made an interesting observation yesterday saying that BHP dropped 25% in the three months following its bid for RIO. What ever the case, we have to be mind full that BHP is a world class company that should form a core holding in portfolio's. We're now likely to pick this asset up at lower prices in the coming weeks. 

 Overnight, THE DOW JONES added +9 points or +0.09% to 10415. The FTSE 100 lost -47 points or -0.89% to 5302. Locally, the SPI FUTURES contract is pricing a drop of -9 points - the futures contract was weighed by a drop in BHP in overseas trade.