Corrects figure in second bullet point and fourth paragraph to 10 percent from 20 percent
By Michael Erman
NEW YORK (Reuters) - Fast money is building in Potash Corp after BHP Billiton Ltd's $39 billion hostile bid, but the sheer size of the potential deal could limit the sway arbitrageurs and hedge funds have on the outcome.
More than 145 million Potash shares have been traded since the Canadian fertilizer company said last week that BHP had made a $130-per-share buyout offer, according to Reuters data.
While that is equivalent to 50 percent of Potash Corp's outstanding shares, the number also includes shares that have changed hands more than once.
According to a source familiar with the matter, less than 10 percent of Potash Corp's shares is estimated to be held by new shareholders, such as arbitrage investors, since the company made BHP's offer public on August 17.
Arbs like to speculate on companies in play because they focus on short-term payouts rather than waiting for longer-term prospects to bear fruit. Thus, they might be willing to sell at a lower price than long-term shareholders.
Arbs, speaking on the condition of anonymity, said fast money is picking up large positions in Potash, but there are limits on how much influence they can accumulate given the company's large market cap, currently at about $44 billion.
"It's a big company -- this isn't Airgas," said one arb, referring to the chemical company currently trying to fend off a hostile bid by rival Air Products. Arbs have been following that potential transaction closely.
Even if one were to assume 10 percent ownership of Potash by arbitrageurs and hedge funds, that would require more than $4 billion of purchases by the investors.
The same level of activity would buy more than two-thirds of Airgas, which currently has a market capitalization of less than $6 billion.
According to the source familiar with the situation, the arbitrage ownership of Potash Corp is likely to be in the mid-single digit percentage levels.
BHP Chief Executive Officer Marius Kloppers on Wednesday played up the influence of arbs and hedge funds on Potash, saying "quick money makes the decisions at the end of the day."
"A huge chunk of this register has changed hands in the last week -- I think over 40 percent of the register," Kloppers said in a CNBC interview. "Clearly there are a lot of arbitrageurs in there. There are a lot of hedge funds and so on."
Computerized high-frequency trading has inflated volumes in recent years, and fast money like arbitrageurs and hedge funds can trade in and out of stocks targeted in a hostile bid.
While the ability to turn a quick profit might spur some arbitrage investors to sell at a lower price than some long-term investors, any arb that bought into the stock after the BHP offer became public would have paid more than $130.
Potash shares have risen about 30 percent since the world's largest fertilizer maker disclosed BHP's bid on August 17. The stock fell 2.4 percent to $145.50 on Wednesday on the New York Stock Exchange.
Hedge funds and arbitrageurs are sophisticated investors and are not necessarily all looking for the same outcome.
"The idea that hedge funds are some giant monolith that all move together is a very dangerous way to look at the world," said one investor, who believes that shareholders will hold out for significantly more money than is currently on the table.
"There are fast money (investors) who bought at $140 and will sell at $150, but that's not everybody... The guys who buy the largest positions are the guys who are least likely to think like that," he said, suggesting they are likely to hold out for more money.
A Reuters poll showed Potash investors think BHP could succeed with a higher bid of $162 a share, while many analysts regard $157 as a winning offer.
Reporting by Michael Erman; editing by Carol Bishopric