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BHP starts share buyback after nixing Potash bid

POTASH - SMOKY BUILDING

The world's biggest mining company gave up on its bid for PotashCorp of Saskatchewan Inc. (POT-N) Sunday night after receiving clear signals from Ottawa that it could not pass Canada's takeover test, placing pressure on the Harper government to clarify the new rules for foreign investment.

BHP Billiton Ltd. (BHP-N) said it was withdrawing its hostile $38.6-billion US offer for PotashCorp, but company officials took the unusual step of outlining why they felt Ottawa's decision was wrong. The Australian company laid out what it called "unparalleled" promises it made on jobs and investment, including commitments to spend $370 million on infrastructure in two provinces, to give five-year employment guarantees at PotashCorp.'s Canadian mines and to move 200 jobs from outside the country to Saskatchewan and Vancouver.

Those promises "would have resulted in a significant net benefit to Canada, Saskatchewan and New Brunswick," BHP said in a statement.

But in meetings last week between federal officials and BHP, the government indicated its decision was firm and that there was little prospect that even a sweetened offer by BHP would get approval. There was no negotiation between the two sides, sources said, and Industry Minister Tony Clement was not part of the discussions.

Clement, who delivered an initial rejection of the bid on Nov. 3, said Sunday night there was no obligation by his department to negotiate with BHP on improving its offer and "clearly, [the company] chose not to."

The minister called a news conference late Sunday to offer his first public explanation of why the government turned down one of the largest takeover attempts in Canadian history. Of the six Investment Canada Act guidelines that determine if an investment has a "net benefit," Clement said BHP's bid failed to meet three of them. He said the government felt the takeover would not have a beneficial effect on Canada's ability to compete in world markets; on productivity, efficiency and innovation in Canada; and on the country's overall level of economic activity.

Clement said that while BHP is a big, successful mining company, "They do not have comparable experience to PCS in the mining and marketing of potash."

But while the minister has offered assurances that Canada is still open to foreign investment, he said little on Sunday about what the new ground rules will be after Ottawa's second rejection of a large deal in three years. The key issue for investors will be to have greater clarity on how the government interprets the "net benefit" test - the one that BHP failed. The government will provide that clarity in the "days ahead," Clement said.

BHP's chief executive Marius Kloppers spoke to Clement by telephone Saturday morning about the status of the offer. BHP's decision did not come as a surprise, Clement told reporters in Toronto on Sunday

A BHP spokesperson would not comment on what took place in its meetings with government officials, but in a release the company said its original offer included undertakings that were "unparalleled in substance, scope and duration."

In a written statement, BHP made those promises public, which it had planned to do if the offer was approved. The offer also included legally binding undertakings that included spending $450 million (U.S.) on exploration and development over five years and about $8-million annually on community programs in Saskatchewan and New Brunswick, where Potash Corp.'s mines are located.

BHP also said would have applied for a listing on the Toronto Stock Exchange and would have agreed to an "unprecedented monitoring and compliance regime," including offering a $250-million performance bond, to help back its promises on investment and employment.

The Melbourne-based miner also committed to remain a member of the Canpotex potash marketing arm for five years, addressing one of the most contentious issues in its proposed takeover. BHP's plans to exit Canpotex were controversial because the move would have led to a drop in potash prices, and in turn lower royalties from the commodity for the province of Saskatchewan.

The potential loss in provincial revenues formed part of Saskatchewan Premier Brad Wall's campaign for Ottawa to turn down the bid, along with his argument that potash is a strategic asset that should not be sold to a foreign buyer.

In response, BHP said its intention was to combine its "extensive diversified global experience with the potash experience of PotashCorp to create a world-class Canadian business ... We believe these benefits would have been substantially better than the status quo."

Clement said a parliamentary review of the Investment Canada Act is coming and that, as Industry Minister, he will "make absolutely sure that no one is saying there is not clarity in how we review these kinds of investments."

BHP said it was disappointed with Ottawa's decision to stop the bid, but that it remains committed to a plan to build the Jansen project, which could be the first new potash mine in Saskatchewan in 40 years.

"We remain committed to Canada and we plan to develop a significant presence in the potash industry in Saskatchewan. As part of those plans we will continue to progress our Jansen Project and other development opportunities," BHP said in its statement.

A final decision on whether to proceed with the Jansen project will not be made until late 2011 or early 2012.

With files from Globe and Mail reporter Tara Perkins in Toronto

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