August 19, 2010 / 5:35 AM / 7 years ago

Potash Corp begins hunt for a richer offer

<p>Mill manager Josh Wheeler examines a pile of processed potash at the Mosaic Potash Colonsay mine storage facility in Colonsay, Saskatchewan in this file image from September 24, 2009. REUTERS/David Stobbe/Files</p>

TORONTO (Reuters) - Potash Corp moved on Thursday to find a buyer willing to top BHP Billiton’s $39 billion hostile offer for the world’s largest fertilizer company as shareholders balked at a bid they consider too light to support.

Potash Corp is soliciting alternative bidders willing to pay more than the $130 a share offered by BHP, the world’s largest mining company, a source close to the matter said.

At $39 billion, the total value of the BHP offer is the highest in any industry this year.

“Any time you get something like this you explore all your options,” said the source, who asked not to be named. “There are a lot of ways to get creative about this thing.”

The source told Reuters that Potash Corp was confident that the alternative bids would emerge for the leader of an industry with huge growth potential. “The notion is that this is the Cadillac of the (fertilizer) business.”

Earlier Thursday, the Wall Street Journal reported Potash Corp was exploring potential alliances with global chemical and agricultural companies, as well as Chinese sovereign banks, citing people familiar with the matter.

Potash Corp, based in the Canadian province of Saskatchewan, declined comment.

Earlier this week, Potash’s board flatly rejected the BHP bid, and the Australian mining giant said it would take the offer directly to shareholders, many of whom have said they’ll hold out for a richer deal.

The offer “is probably low relative to the long-term earning power of the company,” said Bob Gorman, chief portfolio strategist at TD Waterhouse . “We thought this was the opening salvo. Potash is in play.”

Potash Corp’s New York-listed shares have climbed 33 percent since BHP made its offer, reflecting anticipation of a sweeter bid. The shares closed up 91 cents at $148.84 on Thursday, valuing the company at $43.8 million.

For its part, BHP Billiton is focusing on getting regulatory approval for its bid before trying in earnest to win over the Canadian company’s shareholders, a second source told Reuters.

BHP is betting the absence of any rival offers will sway Potash Corp investors to support its bid, said the source familiar with the situation.

“At that point -- if there has been no higher bid, and they don’t think there will be -- if they have regulatory approvals and they don’t manage to get another bid up, (its) leverage is reduced,” said the source, who was not authorized to speak publicly and declined to be identified.

“It is early days. This is a bit of a slow motion race.”

With its takeover offer, BHP aims to vault to the top of a rebounding fertilizer industry, which suffered during the global economic crisis.

The nutrient, critical for boosting crop yields, commanded more than $1,000 a metric ton during the commodity boom of 2007-08. It has since fallen to about $350 to $375 a metric ton levels but many analysts believe rebounding incomes and rising demand for food in China and India mean prices will inevitably rise.

CASH IN HAND

To pay for its offer, BHP has secured a $45 billion loan from its banks, adding to an existing cash pile of $11 billion.

Six banks are leading the jumbo loan, which is the loan market’s biggest deal since December 2008 when Belgian brewing giant ABInBev took a $45 billion loan to finance its acquisition of Anheuser Busch in December 2008.

BHP was preparing to file details of the loan to finance the deal with the U.S. Securities and Exchange Commission as a first step in clearing regulatory hurdles, said the source.

BHP declined to comment.

The deal fits into BHP’s strategy of building output in low-cost, exportable commodities, particularly those needed in China, its biggest market.

But BHP may not be willing to go too much higher. Marius Kloppers, the company’s chief executive, has a reputation for fiscal prudence, after walking away from a year-long campaign to take over Rio Tinto.

Potash Corp, headquartered in Saskatoon, was once owned by the provincial government. Saskatchewan is home to more than half the world’s reserves of the pink-tinted mineral.

Both BHP and Potash Corp have been lavish with local sponsorships but residents in the city of about 200,000 so far aren’t worried about the province’s largest business falling under foreign ownership.

If its bid succeeds, BHP will be required by law to keep the head office of Potash’s current operations in Saskatchewan, and the mining company said it would comply.

“BHP Billiton intends to establish a global potash business in Canada and base the president and management of the Canadian potash operations in Saskatchewan,” Kloppers said on Wednesday. “We believe this will expand on our existing strong relationships with both the Canadian and Saskatchewan governments and local communities.”

Additional reporting by Scott Haggett in Calgary, Rod Nickel in Saskatoon, Jennifer Kwan in Toronto, Alasdair Reilly and Tessa Walsh in London; Writing by Scott Haggett; Editing by Frank McGurty

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