As BHP Billiton's World Turns

Todd Shriber
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Licking its wounds after yet another failed attempt at a mega-acquisition, attention now turns to what company may be the next object of BHP Billiton's affections. Speculating on who is next in the world of mergers and acquisitions is just a byproduct of the Wall Street rumor mill, but the ''who is next'' game is also a quasi-sport on the Street. It is a way turn a conversation that is nothing more than conjecture into legitimate headlines.

This much is known: BHP's acquisition addiction will not be cured by one scuttled deal, in this case its bid for Potash Corp. The world's largest mining company has been down this road before. Remember, its bid for rival Rio Tinto (RIO) fell apart thanks to the global financial crisis.

Working on the assumption that the Potash (POT) bid is now resting in the M&A graveyard, the spotlight now turns to who is next on BHP's wish (or hit) list. As we have reported here on, two names have been popping up more than others: Anadarko Petroleum and Australia's Woodside Petroleum.

Looking at Woodside first, the deal makes sense. BHP obviously has deep ties to Australia and would not face the same political problems there that it faced in Canada with its bid for Potash. For its part, Woodside is frequently, dare I say perennially, the topic of takeover rumors. There was a time that Royal Dutch Shell (RDS-A) wanted to buy Woodside, but Australia blocked that deal.

Shell settled instead for owning roughly 34% of Woodside. That stake is set to fall by 10% as Shell said on Monday it will almost $3.3 billion worth of Woodside shares. Is this is a sign BHP (BHP) is going to come swooping in to gobble up Woodside? Do not bet on it. As one analyst put it, Shell had to sell those shares in the open market. If there was a buyer for Woodside, say BHP, waiting in the wings, Shell would have been able to sell the shares to that party, probably for a better price. That was not the case.

Anadarko (APC) makes for an intriguing target. The Texas-based company was reported to be a backup plan to Potash as far back as September and the rumor gained steam last week thanks to a UBS report that said BHP could turn its eye to either Anadarko or Woodside after missing out on Potash.

This is another deal that would make sense, at least at first glance. Anadarko and BHP are both active in the Gulf of Mexico and BHP has said it wants to boost its oil and gas production. As a balance sheet play, Anadko makes sense as it brings 2.3 billion barrels of reserves to the table and that number is from the end of last year, so it could be a bit higher. Plus, Anadarko ended the third quarter with $4.2 billion in cash on hand.

Of course, there is the matter of potential unknown liabilities related to Anadarko's 25% non-operating interest in the Macondo well project and the bill that BP (BP) has saddled Anadarko with for cleanup costs, the same bill Anadarko is refusing to pay.

Beyond all of that, the Wall Street Journal ran interesting piece over the weekend that showed Anadarko would have done little or nothing to add to BHP's EBITDA over the last several years.

Apache (APA) makes for an interesting topic of speculation, but BHP would probably have to bid as much as it bid for Potash to get Apache, if not more. The only source I have heard discuss BHP/Apache is one commentator from CNBC, but the two companies work together on a gas project in Australia. Plus, Apache is cheaper than Woodside based on forward earnings projections. Woodside trades for over 23 times forward earnings while Apache's multiple is 12. Interesting...