When the tribe speaks - The BHP bid for Potash

The Fraser Institute Survey of Mining Companies assesses the relative attractiveness of jurisdictions for mining investments. In 2009 Canada continued it’s historically dominance in the rankings with six Canadian provinces in the top 10 jurisdictions.

One can only ponder how the recent decision of the Canadian government to turn down the BHP bid will influence the attractiveness of mining investments in Canada. The rejection of the deal was only the second time that the Canadian government had turned down a bid in the past 25 years.

Much has been written about why the deal was rejected in a jurisdiction that is supposed to be open for business.

The offer price was an issue. The offer at 16% above the market price was probably too low and immediately led the directors of Potash to reject the deal.

But BHP also underestimated Prairie Populism. Prairie Populism is part of a global trend towards the forming of tribes. As the world becomes more global, there is an intuitive reaction by communities to align around shared objectives.  These can be identity, language, political interest etc. The main desire is however not political or economic, but is existential. People need roots and community in an increasingly global world. (1) 

The BHP bid threatened the roots & sense of community in two ways:

o   It did not interact sufficiently with local political leaders, required to build trust and understanding; and

o   It posed a threat to the province’s revenues by suggesting that it would dismantle Canpotex, the powerful potash marketing arm that has boosted royalties paid to the province of Saskatchewan.

The bid also took place in an environment where there is significant skepticism of the benefits of globalisation.

The result was a fertile environment for what Drucker calls "single-cause and single interest groups" to form against the proposed bid. Such groups are typically focussed on preventing an event  rather than to do something proactively. They hold their own single cause to be a moral absolute, and they do not compromise. The result is a highly organised minority. 

Offering alternative approaches that could have led to a different outcome for BHP revolve around the following:

o   A higher offer price (assuming it was economically justifiable) would have convinced at least some directors to consider the deal. Initial director & shareholder pressure would have resulted in a cultural counter force against the prairie tribes forming.

o An awareness of the informal narrative forming should have been part of the bid strategy. Such an awareness should have been gained by actively interacting with tribes forming, using social media.

 In retrospect, the tribe spoke, BHP did not listed, and got voted off. 

(1) - Drucker on government, politcs, economics & society - Chobanyan & Emblemsvag)