BHP Billiton Makes Hostile Bid for Potash; Will Democrats Lose



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RICHARD QUEST, HOST, QUEST MEANS BUSINESS: If at first you don't succeed, BHP Billiton goes hostile, in a bid for Potash. From here to the White House, to a backyard in Ohio, President Obama takes his economic policies on the road. And a black mark for investors and the chief executive tells me he's partly to blame. I'm Richard Quest. It is the midweek version and we both mean business. Good evening. Tonight, BHP Billiton is going hostile and wagering $39 billion on a bid to corner the market in Potash. What is potash? Well, without it a lot more people will be going without food. No wonder BHP is desperate to get its hands on the stuff. The bid has been announced. It has already been rejected. Jim Boulden is here to explain what it is all about, and why in the dog days of summer, this has everyone talking. JIM BOULDEN, CNN FINANCIAL CORRESPONDENT: Well, at $39 billion this would be the biggest takeover bid of any kind so far this year. And yet the board of the target, Potash Corporation of Canada says it is grossly inadequate. Well, what is this all about? Well, Potash shareholders will now have to consider BHP's hostile $39 billion offer that was announced Wednesday. And BHP is putting its credit rating on the line as well. Because Moody's the rating agency warns of a possible review. So a lot of cash, and this rating, possibly put on the line. And if that looks like a hefty price for BHP to pay, for a whole lot of fertilizer, well, let's show you what it is all about. This, food, crops, rapid development in China and India means a huge demand for food crops. And potash is a key ingredient in fertilizer, vital to make these crops grow. And there is no substitute. Simply put, potash means food. In 2008 potash prices shot up to $1,000 a ton, but then crashed in the recession like so many other commodities. But there is so much more scope for growth. Success would make BHP the biggest player in the world for potash. And it is a tough market to get into with only a few key players, and I can tell you it takes a very long time to get one of those mines up and running. Now, let's see what the share prices did. At the open, Potash Corporation was up more than 2.5 percent on Wednesday. That followed (ph) on at 28 percent rise on Tuesday. Now shares in BHP ended nearly down 3.5 percent in London. Of course, the fear is the company will have to fork out even more cash to get what it wants. QUEST: There is one other aspect to this, isn't there? Potash has loaded itself with a poison pill against this take over. BOULDEN: Yes, remember the term poison pill started in the early '80s, it was a way for the board to try to do anything it can to look for the acquirer to have a lot of pain once they took that company over. Now, it is interesting, we had it with Yahoo, recently, against Microsoft, a poison pill. But shareholders don't always like this and shareholders sometimes sue the boards to try to stop a poison pill. Canadian law allows it to be overturned, this so-called poison pill, it if has been agreed to. So, very interesting to see whether this one will work. QUEST: And apparently Australian law doesn't allow poison pills at all. BOULDEN: Neither does U.K. QUEST: Well, we'll talk more about that in just a moment. Jim, many thanks indeed. If the BHP deal goes through it will be the biggest that we've seen this year. As you can see it is well above America Mobile's offer for Carso Global Telecom, the previous number one for the air, according to It outranks International Power's bid for GDF Suez, Century Link's acquisition of Qwest Communications International, and NewsCorp's bid to own BSkyB, British Sky Broadcasting, the bits it doesn't own already. BHP Billiton, though, has been here before and lost. Two years ago it announced a massive offer for one of its closest rivals, Rio Tinto. It fought off the overtures, Rio did on that occasion. BHP's new bid is raising hopes that M A activity is on the way back. Charles Kernot is the director of Metals and Mining at the investment bank, Evolution Securities. Charles, good evening. CHARLES KERNOT, DIR., METALS MINING, EVOLUTION SECURITIES: Good evening. QUEST: First of all, why does this-I mean, is this a commodities play? Is it a mines play? What sort of play is this? KERNOT: Well, for BHP Billiton it is a matter of diversification. They have exposure to a whole raft of commodities, but one of the areas where they see very strong growth in the future is in the fertilizer business and they don't have any exposure to that, at the moment. So, it is really a matter of diversifying their income stream, diversifying the group, so that it can weather the troughs of any future downturn. QUEST: It is not quite conglomerating it, is it? It is not going into an area that it doesn't actually-it is all sort of out of the ground stuff? KERNOT: Oh, very definitely. I mean, BHP is the world's largest natural resources company in terms of mining and oil and gas. So they have a lot of expertise about digging stuff out of the ground. And essentially that is all this is going to be. QUEST: Charles, does it make sense, this deal? Do you like the sniff of it? KERNOT: I think it does. I mean, BHP has got some exposure in undeveloped deposits at the moment. And this actually brings them the expertise to turn those deposits into reality, into future cash flow. QUEST: But why the now? Why the Potash deal now? KERNOT: Now is because, first, they actually need to get that expertise in house, to that they can move through the development process, but also in terms of timing. Think back to only a month and a half ago, when Potash's share price was only about $85. QUEST: Should have moved then. (CROSS TALK) KERNOT: Very well, those people that were buying then, clearly they have made a fantastic profit. But people with that sort of memory will be worried about any future downturn, any double-dip downturn. And therefore, $130, or maybe a little bit more, would look, or could look quite attractive. QUEST: OK, time to come off the fence and I know this bid has got some way to go, certainly if it is hostile. Do you think the deal will be done, but it probably won't be done at $130? KERNOT: Yes, no, I think it will be. I think Marius Kloppers has actually got a lot riding on it, because of the failure at Rio Tinto. QUEST: Yes, let's talk about that. I mean, that was a huge humiliation for BHP, wasn't it? KERNOT: It was. QUEST: A very high profile, hundreds of millions? KERNOT: Yes, $450 million was the cost of a failed bid. So, you know, management would have a lot to answer for if they failed at this one as well. QUEST: OK, Rio failed, why? And how will they not avoid the mistakes again? KERNOT: It failed, I suppose, for a couple of reasons. Of course, there was the down turn that came along in 2008. And so that really made BHP Billiton think again. But also I think the strategy was probably misplaced. That they weren't really showing themselves to be as determined enough, to push through and succeed. QUEST: But you get the feeling this one's got legs and will run to the finish line? KERNOT: Oh, yes. Very definitely. QUEST: Care to speculate a price? KERNOT: I think that it might have to go up to about $150. QUEST: We won't hold you to that. KERNOT: Thanks. QUEST: Charles, many thanks indeed. KERNOT: Thank you. QUEST: Potentially, a lot of M A money flying around. In the European stock markets investors were taking money off the table. The risk aversion had just slipped back into the market. Well, shares had risen four days in a row. So the main markets- (DESK BELL CHIMES) -the European markets ended lower. Oil companies lost ground amid weaker prices in the energy market. Cost of a barrel of oil is down nearly 10 percent over the past two weeks, roughly $75 and change. We have already seen what happened to BHP Billiton today. The markets (ph) and the financials pulled the indices down. To New York, where the Dow had a very strong session, but now just it is still up, 43 points, just half of 0.4 of a percent. But it is-we are now in the very quiet days of August. But those quiet days shouldn't deny the fact that Barack Obama is now well and truly turning his hand to kitchen table politics with the midterms only a few months away. And with Americans loosing their appetite for his economic policies the president meets a family that says it is better off because of those policies. We'll talk to Bill Schneider in a moment. (COMMERCIAL BREAK) QUEST: President Obama has been talking about the U.S. recovery. The president took to the road today, he sat down with a family in Ohio, and they discussed economic stimulus and how it is working. In a speech later on he said the housing market remained a big drag on the U.S. economy; all those houses in foreclosure, and now underwater or in negative equity. The president offered an update on the plight of the millions who are still looking for work. (BEGIN VIDEO CLIP) BARACK OBAMA, PRESIDENT OF THE UNITED STATES: The main message that I want to deliver, before I start taking questions, and I said this to Joe and Rhonda, is slowly, but surely, we are moving in the right direction. We are on the right track. The economy is getting stronger, but it really suffered a big trauma. And we're not going to get all 8 million jobs that were lost, back overnight. It is going to take some time. And businesses are still trying to get more confident out there, before they start hiring. And people, consumers, are not going to start spending until they feel a little more confident that the economy is getting stronger. And so what we're trying to do is create sort of a virtuous cycle where people start feeling better and better about the economy. And a lot of it is sort of like recovering from an illness. You get a little bit stronger each day. And you take a few more steps each day. And that is where our economy is at right now. (END VIDEO CLIP) QUEST: Now, President Obama pledged that the U.S. Social Security system would not be privatized. Republican lawmakers have called for the government pension scheme to be replaced with private savings accounts. He may have a fight on his hands in the next few months. He has definitely got a fight on his hands, midterm elections to Congress are looming and they could shift the balance of power. The voters go to the polls in November. So this is the way the situation looks at the moment. Remember there are two houses in the U.S. Congress. In the House of Representatives there are 256 Democrats, and a 179 Republicans. So, Democrats clearly have the majority there. But, of course, members face election every two years. In the 100-member Senate, there are 59 Democrats, including two independents who usually vote with Democrats, and 41 Republicans. Each Senator serves a six-year term and there are elections and there are 37 seats, so far this year. So that is the state of power now. We already know, of course, that President Obama lost his super majority, after Ted Kennedy died and that midterm election, or that election. So there we are. That is the way the state of play. U.S. political analyst Bill Schneider joins me now live, from Washington, to put this into perspective. Bill, first of all, let's take this at a clipped pace. President Obama is in trouble, but is it because what will happen in the House,, or the Senate? WILLIAM SCHNEIDER, CNN SR. U.S. POLITICAL ANALYST: Well, both. There is more of a danger in the House, where there is a real threat that Democrats could loose their majority. And if Republicans take over the House they are going to try to block just about everything the president has done, and the Democratic Congress have done. They may try to repeal certain things. He'll never sign, say, a repeal of health care, but there are other things they can do, like try to cut off funds for his health care plan. They can make real trouble. And if the Republicans control the House of Representatives, they'll have subpoena power. And they can start criminal investigations on certain members of the administration for what they suspect could be wrongdoing. They can really harass this White House. QUEST: But as I looked at those numbers. The Democrat majority in the House is a comfortable number. So, if they are going to loose control then that is a, you know, in British political terms, that is quite a swing-o-meter towards the Republicans. SCHNEIDER: It certainly is. The Republicans would have to gain 39 seats in the 435 member House, which is quite a considerable number. But most analysts, right now, are putting the expected gains for Republicans, that is losses for Democrats, at somewhere between 35 and 45 seats, which means it is right on the line. The Senate is more likely to stay in Democratic hands, because the Republicans would have to pick up 10 seats, out of 100, in the Senate. But people are not dismissing that as a possibility with the economy in such big trouble. QUEST: Let's talk about that, in detail. The president has actually had a very strong legislative agenda, which has been successful in getting through Congress, health care, financial reform, stimulus package, and so forth. But he's not getting any credit for any of it at the moment. SCHNEIDER: That is exactly right. It is very frustrating, because this Democratic Congress for the last two years, and the president, have really had a tremendous, impressive legislative agenda. Health care reform, financial regulation, the economic stimulus bill, some educational financing reforms; it has been one of the most ambitious congresses, and the most successful agendas, really since the Great Society of the 1960s. But you know what, when you ask people do they acknowledge that this has been a good president, a good Congress? They say, no. They only have one thing that the voters are asking. Where are the jobs? The administration said that unemployment would go down to 8 percent. It is still close to 10 percent. QUEST: Right. SCHNEIDER: Where are the jobs? That is the only question, the only criterion, that American voters are using. QUEST: Talking U.S. politics with Bill Schneider is a treat and a pleasure. So, I'm going to throw a few more quickies at you, Bill, if I may? SCHNEIDER: OK. QUEST: Any danger to Obama being on the ticket in '12? SCHNEIDER: Well, two is an enormous-it's an eternity in politics. Harold Wilson once said a week is a long time in politics. Let me just remind you, Bill Clinton suffered a terrible devastating loss in his first midterm, after two years in office. The Democrats lost control of Congress for the first time in 40 years. He got handsomely re-elected in 1996. So, I don't want to make any predictions for two years down the line. QUEST: I saw in my weekend reading the scintilla of suggestion that Joe Biden gets dumped and Hillary becomes the number two. Are you giving any credence to that? SCHNEIDER: Could happen. Could happen. Joe Biden may decide he wants to retire. I don't know if the president will give him the push, but the president could select anyone, Secretary Clinton to be his running mate. And that would be a way of grooming her to be his successor on the ticket in 2016. QUEST: A long way ahead. Bill, many thanks, indeed. Lovely to have you with us. Bill Schneider, U.S. analyst, joining us from Washington. In a moment, a company that sets itself an ambitious goal to change the worldwide energy industry. They saw a change of their own today. Their share price fell by a fifth. I'll explain after the break. (COMMERCIAL BREAK) QUEST: Shares in the world's biggest turbine maker lost nearly a quarter of their value this session. The Danish company Vestas Wind Systems, plunged more than 23 percent in Copenhagen, after it said it was loosing more money than expected. Now, Vestas, slipped into the red by a $153 million in Q2. That really isn't the big problem. The loss will have made a profit in the first, even though it wasn't expected. It was the outlook that is looking bleak. A $1.3 billion worth of orders on hold, and it is that, that the market decided it didn't really like the look of. Vestas is in the wind business for the long haul. It's mission statement reads, failure is not an option. I spoke Ditlev Engel, the chief executive at Vestas, and I asked him, looking at the numbers, why did he think the market reacted as it did? (BEGIN VIDEOTAPE) DITLEV ENGEL, CEO, VESTAS WIND SYSTEMS: What has gone wrong is the timing of certain projects that we expected to execute in the second half of 2010. Which we can see now, will not happen in 2010. Even though they will come to Vestas, but it will not be, let's say, soon enough to impact 2010. QUEST: Do you bear some of the blame for not having telegraphed to the market that this was going to be the case. Because to loose a fifth of your share price in one day is pretty dramatic. ENGEL: It is. I have to say, of course, we bear the blame. No doubt about it. But we can only tell people what we know. And when we are looking ahead, what we are saying is this is a forecasting, right. So when we have now reviewed this, we said, we are now in doubt that this is going to happen. So, we have to change the forecast. So we couldn't tell people before. QUEST: But Chairman, you have not only given lower guidance, you have failed to meet on the existing numbers. Well, I think it is important to say that if you look at the company as such, and in 2009, we had our best year ever. In 2010, we said it is going to be very challenging because of the financial crisis. We saw a 50, 5-0, percent drop of order intake in 2009. The orders are coming back. They are significantly back. But it does have a delayed impact on the revenues and earnings in 2010. QUEST: So, why has there been this mismatch between what the market was expecting and what you were clearly experiencing? ENGEL: That's a good question. And, of course, something we have to reflect over. But we have said all the time that we did expect that second half 2010 would be where things would be happening. We would be very backend loaded. And this is exactly, this backend loading some of it is slipping out of 2010. QUEST: Will you be profitable by the end of the year again? ENGEL: Yes. QUEST: And into 2011? ENGEL: 2011, we'll talk about at the end of Q3, but basically, it is a night and day scenario. A huge loss in the first half, and we'll have a rebound in earnings in the second half. QUEST: I suppose what I'm really trying to get you to say, sort of, in blunt terms, is the crisis over? ENGEL: In our view, yes. Because we do expect the orders to grow by 250 to 300 percent in 2010 compared to 2009. But this is not over the counter products, even it if looks like this here today. These are products that takes a while before you get the order in and before you produce them and ship them. QUEST: Let's talk about them. Because (UNINTELLIGIBLE). I mean, it is rather pretty this, isn't it? ENGEL: I think so. QUEST: But you know, how long does it take to make one of these things, install it, from the-if I decided I was going to move into wind turbine technology? ENGEL: Yes? QUEST: From the moment I say I want to do it and I'm going to get it, how long should I be thinking about it. ENGEL: Oh, I have to tell you that this is much more complicated than it looks. How many parts would you think to such a turbine? QUEST: How many parts? ENGEL: Yes. QUEST: I don't know. One, two, three. (LAUGHTER) ENGEL: Totally there is more than 9,000 components in a wind turbine, which is more than three times what you will have in your car. So my point is, really, that the technology barriers here are extremely high. And a lot of analysts in the world have said that if you are looking for renewable energy, the highest barrier to entry is into wind, because there are so many disciplines that you need to understand. QUEST: But once it is up and running, does it just keep running? I mean, what I want to- ENGEL: It depends on the maker. QUEST: OK. (LAUGHTER) QUEST: Good answer, good answer. All right. What I need to know, I've never understood, let's say so we have one of these things going around in my back garden. How much energy will this produce? And how much-what will it power? ENGEL: Well, this is a three megawatt turbine. QUEST: Right. ENGEL: And that means, basically, you are, without knowing your household, but on average, a European household consumes that in a year. So, in one hour it will give enough electricity for you, for a whole year. (END VIDEOTAPE) QUEST: There's a thought. Today's earnings from Vestas contrasts sharply with the fortunes of another renewable energy company. Based in New Jersey, this start up has developed what it calls a game changer for the solar power industry. So, first from wind, now to sun; Patricia Wu joins us now from New York to talk more about this. (DESK BELL CHIMES) Everybody is in the market for renewable energies, and this is an interesting one, too, solar power. PATRICIA WU, CNN CORRESPONDENT: It certainly is, Richard. This so- called game changing solar panel is actually assembled at a small factory in the U.S. state of New Jersey. The company recently landed a huge contract with the state's largest utility to set up one of the largest single solar energy systems in the U.S. And the company is green in more ways than one. It is also creating jobs and lifting the local economy. (BEGIN VIDEOTAPE) WU (On camera): You drive this road everyday and- HUSSAM ALATRASH, PETRA SOLAR ENGINEER: Yes, this is the most fantastic road, because this is actually where I first saw the solar panels come up. And they increased over time. So, just seeing them lined up like that, it is just fantastic. WU (voice over): Hussam Alatrash is a engineer for Petra Solar, a small New Jersey company that is making a big impact on the state's electricity grid. ALATRASH: First of all it is the solar energy generated. Second of all, it acts as a sensor that communicates back and forth to the utility. It actually does a lot of intelligence analysis on the local conditions of the grid. WU (On camera): This is a panel and then that is the intelligence, right there? SHIHAB KURAN, CEO, PETRA SOLAR: That is the intelligence, exactly. WU: And that little box is the game changer? KURAN: That little box is the game changer. And well, really, the simplest way of saying that is pick up an iPhone. One might say, well, it is just a phone, while it is a camera, a communications device, it has memory, it has a processor. It has software. WU (voice over): Petra Solar is installing 200,000 of what it calls smart solar panels on utility polls all over New Jersey. Smart, because they don't just generate energy, they monitor the grid for potential problems, and that could mean fewer blackouts. New Jersey's largest utility, PSE G, is paying $200 million for the installation. Some of the cost is being passed on to customers. UNIDENTIFIED MALE: Rate payer initially will pay about 10 cents per month for this investment, and then that diminishes over time. WU: The overall costs still bothers some critics of the project. They say solar investments are driving up the price of conventional electricity for homeowners and businesses. But the mayor here disagrees. MAYOR CHARLES BUTRICO, SOUTH PLAINFIELD, NEW JERSEY: It is not only that we have a company that is-you know, it is green technology doing great things for the environment. But it is creating jobs within Petra-and impacting the surrounding communities. WU: Petra's workforce grew tenfold over the last year. It expects to add hundreds or even thousands more jobs, if it can land contracts with other utilities. KURAN: We created practically a full spectrum of jobs, Ph.D.s that work for Petra Solar as well as highly intensive labor work that we have for assembling the system. We are very proud, but we're humble at the same time. But we are very proud of, given the economic environment that surrounds us. (END VIDEOTAPE) WU: Petra has global aspirations. It is talking to companies in Europe, the Middle East, Australia and Asia, hoping to land new contracts and says its business model can create jobs wherever it goes, Richard. QUEST: I am just not quite sure that I think they are very attractive, all those solar panels by the side of the road. But there we are, different views, different people, many thanks. Interesting stuff, renewable energy on QUEST MEANS BUSINESS. In a second or three, two competitive for its own good. That is the charge that is leveled at Germany. With critics claiming that its success is threatening the global recovery. After all, if everyone was to export, who is going to buy? In a moment. (COMMERCIAL BREAK)QUEST: Hello. I'm Richard Quest, QUEST MEANS BUSINESS.

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