Ricardo's Business

Make no doubt about it… BHP wants Canada’s Potash Corp. So much so, the company’s going straight to shareholders in a hostile takeover worth $43 billion, or $US130 per share. That’s because the Potash board rejected a proposal put to its board.

Success would see BHP become the largest fertiliser supplier in the world, at a time when fertiliser prices have recovered following a slump during the global financial crisis.

Right now, analysts are mulling the fine print to work out whether this is a good deal for BHP shareholders, and if it’s an indication the BHP/Rio Tinto Pilbara iron ore joint venture will now not go ahead.

The immediate consensus is that BHP would have to raise its offer price, given shares in Potash jumped to $143 per share, 10 per cent above the bid.

This deal though, may be a major turning point for the share market. As Ben Potter from IG Markets points out, many market watchers were looking for a catalyst to drive the market, and this deal could provoke other mergers and acquisitions. Why? Because many corporations are sitting on large amounts of cash, earning very little return.

The global financial crisis has reduced investor and corporate confidence, and thus risk, so many have been leaving their cash in banks earning very little. But as share prices eroded, certainly some value must be kicking in.

Charlie Aitken at Southern Cross Equities believes we’ll see a raft of M&A activity as a result, so he’s continuing to set portfolios for rises in commodity prices and positioning for growth. Aitken thinks the best value on the share market, remains in growth stocks. He notes obvious takeover targets like Macarthur Coal, Alumina, Fortescue Metals, Riversdale, Equinox Minerals, Whitehaven Coal, ERA and Western Areas, and that they’d be the ones he would be adding to a portfolio first, not just for takeover potential, but because he believes this is where the cheap growth in the market is.

There’s been a number of takeover approaches already this year, the most recent being Intoll Group, Centennial Coal and AWB… how many more will we see this year?

Watch this space!

Of course before making any financial or investment decisions, speak with your financial planner to find out what is suitable, for you.