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BHP Billiton Retaining Petrohawk Employees Key To Takeover

MELBOURNE -(Dow Jones)- BHP Billiton Ltd.'s (BHP) decision to pursue a US$12.1 billion bid for Petrohawk Energy Corp. (HK) hinged in large part on retaining the U.S. company's staff to help the resources giant develop a growing portfolio of shale assets. BHP, through Barclays Capital, in May contacted Petrohawk Chairman and Chief Executive Floyd Wilson to arrange a meeting to discuss potential business opportunities, and Michael Yeager, CEO of BHP's petroleum division, in early June told Wilson the company was exploring opportunities for U.S. shale plays and was interested in a possible deal to acquire Petrohawk, BHP said Monday in a filing to the Securities & Exchange Commission. Yeager during negotiations that followed indicated the Melbourne-based company was only interested in a friendly deal, which would mean a "meaningful premium" to Petrohawk's valuation, and that a key factor in BHP's determining whether to proceed with a bid was its ability to retain Petrohawk's employees "due to their technical capability and unique knowledge of the assets." BHP in its SEC filing said its all-cash bid was first pitched at US$37.50 per share, and Wilson countered with a suggested price of US$40. The companies later in June entered exclusive negotiations and settled on a bid at US$38.75, a 65% premium to Petrohawk's closing price in mid-July before the deal was disclosed. During the diligence period, Yeager discussed with Wilson the importance to BHP of retaining Petrohawk's employees, and BHP's desire to have certain executives and workers enter into retention agreements at the same time as a definitive bid agreement, BHP said. Wilson, for one, will be entitled to a US$2 million retention bonus on top of his base salary and pro-rated portion of his annual bonus, as well as US$3 million for consulting work. The acquisition of Petrohawk is an important stategic step for BHP, which was last year rebuffed in a highly politicized US$36.8 billion bid for Potash Corp. of Saskatchewan Inc. (POT). Petrohawk will double BHP's resource base in oil and gas, and the assets covering about one million acres in Texas and Louisiana compliment the US$4.75 billion deal earlier this year for Chesapeake Energy Corp.'s (CHK) Fayetteville Shale acreage in Arkansas. BHP has built a warchest with revenue from iron ore, coal and other metals and minerals that are primarily destined for the rapidly growing Chinese market, but has been looking to broaden its resource base in oil and gas. BHP CEO Marius Kloppers last month said the company had been looking at shale opportunities over the last 18 months to two years. BHP's offer for Petrohawk shares is set to close Aug. 19, and the company said it plans to fund the purchase with available cash and a US$7.5 billion 364-day financing facility that it will enter into shortly before consummating the deal. -By Robb M. Stewart, Dow Jones Newswires; +61 3 9292 2094; robb.stewart@dowjones.com

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