What: In what would be considered a blow for BHP Billiton Limited (ASX: BHP), commodities trading house Glencore Xstrata has withdrawn itself from the race to acquire the miner's Nickel West assets. Glencore had been considered one of the favourites to acquire the business which is expected to yield anywhere between $500 million and $1 billion for BHP Billiton.
So What: Under the management of Andrew Mackenzie, BHP has been attempting to sell non-core assets, such as Nickel West, in order to focus solely on its "four pillar" strategy going forward. The sale of Nickel West couldn't have possibly come at a better time considering the commodity has soared in price this year as a result of Indonesia's export ban.
While it is unknown why Glencore withdrew itself from contention, it is possible the company was wary that the commodity could plunge in price literally overnight if Indonesia reversed its ban. It is also a possibility that Glencore was deterred by the additional capital expenditure outlay required (estimated to be around $1.5 billion) for the assets should they have gone through with the acquisition – this would have taken the total cost anywhere up to $2.5 billion.
Now What: It is believed that up to five other parties are still interested in the business and while some suggest it is only worth $500 million, analysts believe its value is around $800 million, according to The Australian Financial Review. The proceeds from the sale would be put towards paying down the miner's debt, while it is also highly likely that shareholders will be rewarded with additional returns in the form of a special dividend or share buyback program.
BHP Billiton has gained 0.5% this morning while fellow miners Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) have gained 0.8% and 1.3% respectively. Western Areas Limited (ASX: WSA), which is a nickel producer, has risen 1.6% in early trade.
