Citigroup Inc. said that BHP Billiton Ltd. investors would get higher free cash flow per share from a stock buyback than the company’s proposed acquisition of Potash Corp. of Saskatchewan Inc.

In a report Friday, Citigroup analysts led by Heath R. Jansen in London said that compared with BHP’s current hostile bid of $130, buying Potash for an assumed $145 a share would be “dilutive.” Jansen said that free cash per share is higher with the share repurchase when comparing a stock buyback of equivalent value to the Potash deal and funded on the same borrowing terms. Free cash flow is cash from operations left over after capital expenditures.

Jansen added, “The optimum scenario according to our calculations is a buyback.”

BHP, the world’s largest mining company, took its $40 billion cash bid directly to Saskatoon, Saskatchewan-based Potash Corp. investors on Aug. 18 after the producer of crop nutrients rejected the proposal and said it was “grossly inadequate.”

(Thanks to Bloomberg and Wikipedia)