BHP Billiton’s bid for Potash Corp has kept things interesting for financial journalists during the summer season. As CEO Marius Kloppers flies around the world persuading shareholders to support the bid, people will reexamine the role of shareholders. It is worth considering whether securities lending data can shed any light on whether this bid will go through unaltered? Companies covered today include BHP Billiton, Potash Corp, Kraft (KFT) and Cadbury’s (CBRY),
Few could claim to have prior knowledge that potash is a key ingredient for mineral based fertilizer – now we are all experts. Having failed to merge with Rio Tinto on the eve of the credit crisis, BHP is awash with cash, low debt, strong growth and its results this week made sweet reading for investors. Many would argue that this gives Mr Kloppers and his team every right to do what they want and he is using this goodwill to branch out into a completely different sector.
Despite the efforts of Potash and much to the annoyance of some media commentators, it looks like no one is going to trump BHP’s $39bn all cash bid. Data Explorers long and short fund flow data can help shed light about the behavior of Potash’s shareholders and whether the long term shareholdersin POT have sold their shares to other investors who are opportunistically buying in the hope of a higher bid.
This does not seem to have happened. The mainstream view is that shareholders quickly sell their shares to hedge funds if a takeover meets their target price. The UK’s Takeover Panel doesn’t think this is right and is drawing up proposed reforms. Securities lending data does not support such a simplistic view. Though we can only view a subset of the share register of POT it is a reasonable sample and a daily insight.
When Kraft (KFT) bid for Cadbury’s (CBRY), the chocolate maker’s institutional shareholders (who allowed people to borrow their shares) sat still. The same has happened with POT. Prior to the bid, 77m shares of Potash were held in lending programs. This dipped to 74.5m shares after the bid but has rebounded to 77.5m shares this week. Since we do not observe hedge fund long positions, it is reasonably safe to assume that institutional investors own the 26.2% of issued shares of the Canadian listing. If one looks at the (less significant) US listing of POT, you can see a reduction in institutional ownership from 6m shares to 5.6m since the bid. We do not detect a rush for the door from institutional investors in POT.
Depsite POT’s share price being rather higher than the offer price (mid $150s compared to a $130 bid), few are shorting POT. If no other bidder comes forward one imagines the price will sink back to $130 and if you think BHP is on the only show in town, this is an easy short. But, the risks to short selling at over $150 is not only a rival bidder but also BHP increasing its bid in order to secure board approval for the deal. It is a hostile bid after all and this fear is probably the reason the short base is below 2% of total shares.
BHP is headquartered in Melbourne, Australia where the green party are the politicians in power. What odds BHPs next bid is for a more eco friendly form of fertilizer such as Bio Char (burnt charcoal)?
