FYI | Jun 08 2007
By Greg Peel
Who isn’t going to takeover BHP Billiton (BHP)?
As consolidation in the big end of the mining sector has continued to gain attention, particularly since Alcoa has bid for Alcan and Xstrata has tried and failed to take LionOre, analysts have been madly crunching the numbers and suggesting that anyone of the likes of Xstrata, Anglo American, CVRD or even Rio Tinto (RIO) could be perfectly capable of snaring the Big Australian. (Well…Big Aussie-Anglo thingy). Merrill Lynch has even gone as far as to suggest private equity is not beyond the realms.
But has anyone thought about China?
The Chinese government recently set up a $237bn Chinese State Investment Company, the mandate of which was to explore investment opportunities to allow China to diversify away from its extensive holdings in US Treasuries. Equities are considered very much a playing field.
China has also been scouring the world lately looking to do deals that can ensure secure supply of the country’s much needed raw materials. Hence African despots have been promised sizeable hand-outs in exchange for mining rights, and left-wing Latin American regimes have been embraced as an exploitation of anti-American sentiment. China has even made inroads into Australian uranium.
Last month the CSIC sparked a wake-up call when it took a stake in US private equity giant Blackstone. The suggestion from Bell Potter’s research chief Peter Quinton this was just an harbinger of things to come. Just as a touring sports side might play an A-team as a warm up, Quinton suggests China’s investment in Blackstone is just a training run. A training run ahead of the real game.
If China is going to invest in any world equities for the sake of a higher return, it makes perfect sense to go for those companies that can also prove useful. What does China need? Resources. Is money any object? No. So where might be the best place to start? At the top, perhaps.
Hence Quinton has suggested that China is sizing up BHP. If they get get BHP, they get oil, iron ore, copper, nickel, uranium… Why wouldn’t they have a shot?
Of course this may not sit well with the Australian government and the Foreign Investment Review Board. It’s one thing to have chopsticks at the bowling club, but Chinese ownership of the Big You Know What? Sacrilege. It would place the government in a rather difficult position, however, given its attempts to be as accommodating with the Chinese as possible. We can’t possibly greet the Dalai Lama – we might upset someone. You wanna buy what? Um, well yes we were happy to flog off Qantas but um…
Quinton believes, however, that a takeover of BHP could succeed, given the company is only Australian by birth. Realistically, it is a global enterprise that happens to have 60% of its stock trading on the ASX.
China can’t always get want it wants though. It failed in 2005 when Americans were aghast at a US$18.5m bid for oil giant Unacol right in the middle of the oil security scare.