BHP Billiton will spawn more mega-mergers

Andrew Willis, today at 8:07 AM EST

Canada experienced the mining mega-mergers last year, when Falconbridge and Inco were taken out. So get ready for the mega-mega mergers, as BHP Billiton’s run at Rio Tinto kicks of all sorts of rival deals. By rocking London markets Thursday with an all-stock offered valued at $140-billion, BHP Billiton is telling the business community that to be globally relevant, you have to be massive. Whether or not this thesis is correct is now secondary. A $350-billion mining conglomerate can be built, if BHP Billitonpays up. Such a company would enjoy enormous price setting clout, and serious cost cutting opportunities. Add to these advantages the fact that most CEOs want to be globally relevant. Other companies are going to follow suit. Think about the steel makers or packaging firms that buy metals from BHP Billiton. They will want to bulk up to better deal with their supplier’s heft. Canada’s remaining mining companies will revisit their strategies: Watch for Barrick Gold to make a move, and Teck Cominco’s controlling shareholders to get increasingly nervous as mid-tier players. There will be strategy spill-over into unrelated sectors. Bankers will feel the need to bulk up, despite the integration nightmare that is Citigroup. Cisco might feel it needs to own Nortel, or Nokia may play for Research in Motion, despite the value destruction that accompanied most large tech mergers in recent years. This all ends, by the way, with realization that big is not always better, and the investment bankers returning to undo what they helped create. A decade down the road, we’ll be breaking up these conglomerates. But for now, BHP Billiton is playing a tune that many CEOs will follow.