Randomly Noted

To hear those folks at Potash Corp. tell the story, all they are trying to do is protect their shareholders from a bunch of predatory goons who don’t know how to value Potash. And to make it even more difficult for those goons to harm Potash shareholders, the company will enact a rights plan making an unsolicited offer very, very difficult.

BHP Billiton offered to spend $38.56 billion to purchase Potash – an offer that Potash, one of the world’s largest fertilizer companies,  said would price Potash at “significantly less than intrinsic value.” Apparently the goons aren’t the only ones who don’t know the intrinsic value of Potash – investors don’t either.

The offer sent Potash’s shares soaring well above the $130 per share offer – at $143.17 the market is saying it expects someone to make a higher bid. This blogger certainly doesn’t know the value of Potash in the future (something Potash says the BHP offer ignores). But I do know this – the BHP bid added more than $9 billion of value to shareholders today.

Potash’s board and management should stop trying to protect shareholders from themselves and let the true owners of the company decide what they want to do.

A mutiny in Australian politics is not unheard of, but certainly this one has caught many people by surprise.
Kevin Rudd was increasingly unpopular as prime minister in voter opinion polls for a number of reasons—his rollback of a pledge on a carbon emissions scheme and a plan to levy a new tax on profits in the mining sector–but to remove him so close to an election, with one expected within a matter of months, is a high-stakes gamble.

The anecdotal feedback among voters so far is that the manner in which the centre-left Labor party leadership has ousted Rudd, and installed Julia Gillard as the country’s first female prime minister, was all a bit unpleasant.

The move came swiftly, and most probably in response to internal party polling that would have shown Rudd–who came to power on a wave of optimism and popularity in late 2007–would struggle to win a federal election against his Liberal party counterpart, Tony Abbott. The government was in danger of becoming the first since before World War II not to secure a second term.

Continue reading…

The Aussie dollar is falling sharply. It must be time to buy.
In the great currency smackdown of recent days, the Australian dollar has copped some of the worst of it. Partly because it was trading above where it should, but also because it is a key “risk” currency that tends to shine when the general market mood is better and investors are willing to enter carry trades to get yield.

The currency has fallen against the U.S. dollar and the Japanese yen in particular, and even the Kiwi dollar, against which it normally commands a healthy premium. It is now down near US$0.8316, from around US$0.9260 only three weeks ago.

This column has argued before that the Australian dollar was overvalued. Certainly there was never a justification for it to go to parity.

Some of the factors underpinning its previously-lofty levels look less certain. China in particular has been the big shining light for Australia, buying up its raw materials and helping in no small measure to lift the Australian economy quickly from its slump, but there is the likelihood that China’s growth slows.

The Aussie until recently also benefited from a fairly protracted period of market calm; better stock markets equate to gains for riskier currencies. That has all changed.

Plus the rapid interest rate hikes from the country’s central bank have put it ahead of the curve in terms of yield appeal. Consider what you can get for your money in Australia, compared to the smaller return available in Japan or the U.S.

That’s why the Aussie was set up to fall hard. And fall it has. But the declines should probably be close to done.

The pace of the drop should have washed out a good amount of long positions. The currency has come back to more realistic levels. The reasons to like the Aussie–and there are a fair few–should become more apparent soon.

There should be some serious questions asked if the currency were to push much under the 80 U.S. cent mark; certainly the still-solid economy doesn’t justify such a drop. It would amount to cruel and unusual punishment for a currency that was overpriced for a while but has already corrected to a more reasonable setting.

Survey the landscape–what else is there to buy? The euro? The Thai baht? An already-stronger U.S. dollar?

Given the fairly unexciting alternatives, and the fact the Aussie economy is still in much better shape than elsewhere and rates are higher, there are liable to be some supporters. If the fall continues at a similar pace, one of those supporters could be the Reserve Bank of Australia, which rarely enters the market but may do so to restore order.

(This is a Money Talks column that first ran on Dow Jones Newswires)

Day 2 of Australian government officials speaking frankly, and sharply, about the shameful sham Shanghai trial of Australian citizen Stern Hu and three Rio Tinto colleagues who are Chinese citizens. Monday, when the sentences came down against the Rio Tinto Four, Australian foreign minister Stephen Smith rightly described them as “harsh.”  Today came Prime Minister Kevin Rudd saying China failed to “demonstrate to the world at large transparency that would be consistent with its emerging global role.” As I’ve said again and again, we know nothing – at most next to nothing – about the case. We don’t know if the four Rio employees are guilty as charged. All we know is they were denied due process at every stage of the case, from their detentions last July to the lengthy prison sentences handed down this week. For its part, Rio Tinto is so eager to remain in China’s good graces – the mining company makes a lot of money there – that it has fired the four defendants while declining to speak out on their behalf. At least Australia’s government is saying what needs to be said.

My colleagues report that some or all of the four Rio Tinto employees on trial in China for alleged bribery said they accepted payments of one sort or another. Given the  lack of clarity and transparency in the process – which began with their detentions last summer – it’s impossible to know whether the defendants are acting voluntarily or under duress. Also, we don’t know what has happened to the alleged bribers – the employees of Chinese steel mills who offered the alleged bribes to the Rio Four. Are they getting away with alleged crimes? Have they been secretly detained, tried and punished? Why is it we know about the people who allegedly accepted bribes but not those who paid them, and whose enterprises allegedly benefited? You may recall that the saga began last July when China imprisoned the Rio employees – one Australian citizen and four Chinese nationals – on allegations they stole national secrets. Later, Beijing decided it was a routine criminal matter. Even as the closed trial began today in Shanghai, Rio Tinto’s CEO Tom Albanese was shaking hands with Chinese Premier Wen Jiabao in Beijing’s Great Hall of the People.

Rio Tinto employees Stern Hu, an Australian citizen, and three Chinese citizens, remain in jail – yet their case supposedly moved forward Monday. What we actually know is scant, and it’s not from Chinese authorities, who have been happy to remain silent since imprisoning the four last July. What little information reporters have comes from the Australian government, which has tried to keep an eye on Hu’s case, and it’s this: Chinese police handed the Rio Tinto employees’ cases to prosecutors. Colleagues James T. Areddy and Alex Wilson write: “While Chinese officials issued no announcement of Monday’s move, Australia’s government said it was informed that evidence supporting accusations of criminal behavior … had been handed to prosecutors by the Shanghai Public Security Bureau.” And so the murky case “proceeds” either to a quick trial or further delays – we don’t know, because China’s legal system lacks transparency. As my colleagues write, “The case has fueled a political storm in Australia and debates in corporate boardrooms whether it is a normal criminal matter, as Beijing has contended, or a sign of how China may use economic might to challenge multinationals.” Here’s my previous blog on the matter.

DJN colleague Elisabeth Behrmann reports China’s probe of the four Chinese nationals and the Australian – all employees of giant miner Rio Tinto – will conclude Jan. 11. This comes from the Australian government, not China, which means, of course, their ordeal may not end next week. Moreover, it’s not at all clear that Chinese authorities will disclose details of the charges against the four. Our story says “further extensions to the police probe are possible.” Here’s a recent blog on the subject.

As we contemplate China’s continued economic ascent this New Year, let’s not forget what it means to do business in China. In July, four Rio Tinto employees were detained. The three Chinese citizens and one Australian, Stern Hu, remain in prison on vague charges of bribery and theft of commercial secrets. Life goes on for their colleagues; Rio Tinto and other international miners have begun a fresh round of iron ore price negotiations with China Inc. – while the four languish. One trusts Rio and the Australian government are still doing what they can, behind the scenes, to secure for the detainees a modicum of legal and procedural transparency – if not their complete release. The lesson of the Rio Tinto four is simple: If you do business in China and vex someone in power, your employees may be in jeopardy. It’s not unlike Russia, except, as I’ve blogged in the past, China is essential to many Western companies’ growth plans whereas the Economy of Putin can be avoided. As the 2010 iron ore talks heat up in coming weeks, we’ll keep an eye on how China comports itself and how the four Rio Tinto detainees – victims of last year’s aborted round – fare.

Australia has everything going for it: abundant natural resources coveted by the world’s foremost industrial powers; banks that didn’t take stupid risks with customers’ money; a front-loaded stimulus-spending scheme that appears to have worked; a robust economy recovering so decisively that the central bank is well into a rate-hike cycle; and a decent pension and healthcare system. All this is demonstrably true (with the usual caveats) and it’s also the script to which Chris Bowen, the country’s financial services minister, is hewing to on a trip to New York City and London this week. What’s more, Australia has a refreshing, pragmatic and probably wise attitude toward foreign investment. One hears not a peep of protectionist rhetoric out of the lefty government  - which stands in contrast to their American counterparts. Chinese money has flowed into Australia in recent years as government regulators okayed the lion’s share of acquisitions of resources firms, notes Bowen, whose boss is the Mandarin-speaking Prime Minister Kevin Rudd.  Stern Hu (no relation), the Australian citizen and employee of Aussie-based mining giant Rio Tinto, languishes in a Chinese prison with three Chinese colleagues under the murkiest of circumstances. But Bowen is adamant the case won’t weaken Australia’s approach to China as a foremost trading partner. No doubt the Rio Tinto 4 is “a sensitive issue” in Australia, and Bowen says the Rudd administration “made our views very clear that the Chinese government needs to consider this is not good for their reputation in terms of doing business in China.” Chinese government officials continue visiting Australia, he adds, and “we make the point about Stern Hu on those visits. But you can’t let that downgrade the importance of the relationship.” Asked about foreign money flowing into Australia’s already frothy property market – and the sense one has that some of that money is coming from China – Bowen says, “That’s something we’re relaxed about.” Continue reading…

Paul Vigna and Madeleine Lim discuss the surprise hike in interest rates by Australia and the outlook for retailers. Also, another charge for Boring but this time, not for the Dreamliner.