Can the Western Areas (ASX:WSA) takeover prompt BHP (ASX:BHP) to go nickel shopping?

A takeover battle for Western Areas may only be just heating up as two new potential suitors enter the field.

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The Western Areas Ltd (ASX: WSA) share price is shaping up to be one of the hottest merger and acquisition (M&A) candidates on the ASX.

The potential takeover frenzy was unleashed when IGO Ltd (ASX: IGO) and Western Areas confirmed they were in preliminary merger discussions.

Is BHP next to launch a takeover bid for Western Areas?

The news sparked speculation that BHP Group Ltd (ASX: BHP) could enter the fray. Both Western Areas and IGO are key suppliers to BHP’s Nickel West operations, reported the Australian Financial Review.

BHP’s chief executive Mike Henry has made it known that he has big ambitions when it comes to nickel. He recently signed an agreement with Tesla Inc (NASDAQ: TSLA) to supply nickel to Elon Musk’s electric vehicle (EV) juggernaut.

BHP will need to invest big in Nickel West and the industry is seen as ripe for consolidation thanks to the EV revolution.

IGO could force BHP’s takeover hand

Euroz Hartleys speculated the potential M&A between IGO and Western Areas could force BHP’s hand, reported the AFR. IGO may be looking to give itself commercial leverage when dealing with giant partners like BHP.

Nickel West relies on smaller suppliers like IGO and Western Areas for around 30% of its ore. The quality of the ore from both miners are key to the efficiency of BHP’s nickel smelters. Merging the two smaller miners could give IGO an upper hand in dictating terms.

Three-way takeover battle for Western Areas

But this may soon turn into a three-horse race for Western Areas. The takeover target revealed on Friday that Fortescue Metals Group Limited’s (ASX: FMG) high profile founder Andrew Forrest has entered the fray.

His investment vehicle, Wyloo Consolidated Investment, has gone substantial and taken a 5.3% stake in Western Areas.

Perhaps it’s a bit of payback after BHP outbid him for Canadian nickel miner Noront Resources.

Foolish takeaway

It’s interesting that Twiggy Forrest is such an active player in the M&A scene too. His interest isn’t confined to mining as he went added to his position in Huon Aquaculture Group Ltd (ASX: HUO) following a takeover bid by JDS.  

But not all experts believe that BHP will have to go into the running for Western Areas. They point to comments by Henry that nickel doesn’t need to make up a big part of the miner’s portfolio, as long as BHP becomes an important player in the sector.

Regardless of how the takeover battle for Western Areas pans out, most will agree that we have not seen the last of M&As in the nickel sector.

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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited, Fortescue Metals Group Limited, and Independence Group NL. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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