Listen, pal

BHP/Kloppers: Dear Marius,
You’ve set pulses racing with your assault on Potash Corp – one of the biggest takeovers attempted in the mining sector in the past decade. No-one saw that coming in August. But you need to ensure that this daring assault is remembered for the right reasons.

Given where Potash’s shares are trading, you will clearly have to raise your offer of $130 per share. Bankers and Potash’s shareholders are doubtless egging you on. There will also be a price for a recommendation from Potash’s board. Even your own shareholders appear willing to sanction an offer at $155 per share, which is around Potash’s current share price. A deal is there to be done. My worry is that you will think that your reputation will be badly damaged if, having made such a bold move, you don’t finish the job.

It’s true that failing to pull off a high-profile deal is normally bad for a CEO. But the key to protecting your reputation will be maintaining financial discipline. In fact, you would even be in good company if the deal didn’t go ahead. The industry is rife with informal and formal approaches that have fizzled out – just look at Vale’s tilt at Xstrata, Xstrata’s raid on Lonmin, and its bear hug on Anglo American. Including BHP’s own inconclusive push for Rio Tinto, that’s almost $300 billion of false starts in three years.

True, your bid for Potash – like the bid for Rio – is formal when many others only made tentative approaches. But investors can see this is partly another opportunistic move.

Your reputation would take a manageable hit if you failed to clinch Potash, never mind your public commitment to a deal. But the personal cost of overpaying would be much dearer. BHP has outperformed in terms of shareholder returns under your leadership. You’ll be punished if you pay over the odds for a diversification play when BHP’s latest results show it is already well diversified. I know you’d be disappointed to end this saga with no transaction, especially after you had to abandon the Rio deal. But hopes of a Chinese counterbid are pushing Potash shares higher, and BHP shareholders have set you a ceiling. You should listen to your investors - whatever the animal spirits urge you to do in the weeks ahead.

Your old mining club pal