China tells state companies to explore Potash bid

Fri Sep 3, 2010 11:09pm EDT
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By Euan Rocha and Joseph Chaney

TORONTO/HONG KONG (Reuters) - Chinese officials have ordered state companies to meet investment bankers to explore ways to block BHP Billiton's $39 billion bid for Potash Corp, a source with direct knowledge of the matter said.

In response to the directive, Sinochem is holding meetings with several banks, the source said on Friday, including Citigroup, HSBC and Morgan Stanley.

The order from Beijing underscores the seriousness with which China is taking the potential BHP-Potash tie up and its implications for the pricing and supply of the crop nutrient, despite obstacles to launching a successful counter-bid.

"They are being instructed," the source said, adding the order was issued late last week. "The chairman of Sinochem has been asked to speak to other banks."

A Wall Street Journal report on Thursday said Sinochem had hired HSBC to advise on options pertaining to Potash Corp.

One option being discussed is the possibility of Sinochem linking with China's $300 billion sovereign wealth fund CIC, according to a second banking source familiar with the matter.

The most likely scenario is that China will consider buying a blocking stake, rather than attempt a complete takeover of Potash Corp, said both sources who were not authorized to speak publicly due to the sensitive nature of the discussions.

Assuming a consortium pays a 20 percent premium to Potash's market price, a 15 percent stake would cost about $8.3 billion.   Continued...

<p>Potash Corp mill general superintendent Trevor Berg holds a handful of chicklet potash inside the Cory mine facilities near Saskatoon August 19, 2010. REUTERS/David Stobbe</p>