If you thought a deal worth $39bn would satisfy even the most acquisition-happy chief exec, you’d probably be wrong in the case of Marius Kloppers.
BHP Billiton’s chief exec is thought to be looking at a major oil and gas acquisition while at the same time working on the multi-billion deal to buy Canada’s Potash Corp, according to a story in The Australian on Thursday.
The paper quotes an unnamed “senior figure in the global energy industry” who is “convinced” that Anadarko Petroleum Corp is on BHP’s radar.
The company, with a market capitalisation of $25bn, is an appealing but tricky acquisition target. On the one hand it’s shares have seriously suffered since BP’s Macondo well explosion (Anadarko has a 25 per stake in the project) resulting in a more attractive valuation. But, also due to the Macondo disaster, it is now facing an estimated fine of up to $2bn.
Small wonder there’s a mini M&A boom at the moment – just at look at the cost of borrowing for big, stable companies like BHP Billiton.
Citigroup reckons the $45bn credit facility put in place by the miner to finance its hostile offer for PotashCorp is likely to be just 3-4 per cent.
Key conclusion is that funding cost at current rates will initially be <2% (3 month LIBOR ~33bps, 1 year ~91bps), but this is likely to increase to 3-4% as the US$25b “bridge” loan is termed out to 5 to 10 year fixed rate via the corporate bonds.
We were assuming a cost of funding for the deal of closer to 5%, which would have created an annual interest bill of around $2.1bn; we estimate the above facilities could drop the cost of funding by at least $1bn in the short term.
Obviously, the 3-4 per cent figure needs to be put in the context of sub-3 per cent 10-year US government bond yields and the Fed’s near zero interest rate.