TORONTO/OTTAWA (Reuters) - Canada insisted on Tuesday it has made no decision yet on BHP's $39 billion offer for Potash Corp, even as two newspapers said bureaucrats were advising the government to allow the bid and rumors swirled in the markets that Ottawa would block it.
The federal government will announce its decision on Wednesday, a source close to the matter told Reuters. Ottawa has until the end of Wednesday (0400 GMT Nov 4) to make its ruling public.
Potash Corp shares closed down 1.1 percent in New York, while BHP Billiton's shares closed nearly 2 percent higher in London on speculation that Canada would block a takeover of the No.1 fertilizer maker or impose tough conditions that would scupper the bid.
Industry Minister Tony Clement in an e-mailed statement on Tuesday denied that officials of Investment Canada -- part of his ministry -- had already recommended that the government let the Anglo-Australian miner's hostile bid proceed, against the advice of Saskatchewan, Potash Corp's home province.
"I am currently reviewing the facts of the case. As of yet no decision has been made, and no decision or recommendation has been communicated to the investor," he said, referring to BHP.
By law, Ottawa must review takeovers by foreign companies to assure they would have a net benefit for Canada.
A "yes" from Ottawa will likely prolong the takeover battle and it may well force BHP to raise its bid. Potash Corp has flatly rejected the current $130-a-share offer as inadequate.
Potash Corp's shares are expected to fall if the government opts to veto a takeover, as arbitrage traders will dump the stock. But analysts say the shares will likely rebound quickly given the recent strengthening of global agricultural markets.
Potash Corp's shares closed $1.65 lower at $144.98 in New York. Since BHP announced its bid in late August, the stock has held well above the offer price, as investors bet that a higher bid will eventually emerge.
Canada's Conservative minority government risks alienating its political allies in Saskatchewan if it allow the bid. But the pro-business government risks sending a damaging anti-market message to the global investment community if it blocks the takeover.
Clement's statement, issued in response to articles in the National Post and Globe and Mail, said he would make the decision on whether to block the takeover -- not Prime Minister Stephen Harper.
"The political fanfare of this proposed deal is clearly playing out here," said Darryl Levitt a Toronto-based lawyer at Macleod Dixon. "The final decision does in fact rest with Industry Canada, but because there are very strong supporting arguments for both sides of the equation, Mr. Harper cannot risk alienating any part of his constituency."
The government is expected to face a national election in the first half of 2011. The party could lose valuable seats in Saskatchewan -- one of its traditional strongholds -- if it allows this bid, as voters in the prairie province are for the most part opposed to a BHP takeover.
The provincial government has demanded that Ottawa block the bid on grounds that a takeover would lower royalty and tax revenue. The right-leaning Saskatchewan Party, which is in power at the provincial level, is a close ally of the federal Conservative government.
The province, home to a lion's share of the world's known potash reserves, is prepared to move quickly with a legal challenge if Ottawa gives BHP the go-ahead.
The National Post on Monday, quoting Conservative Party insiders, said Harper himself would have the final say. It said the recommendation for approval carried conditions, including a requirement that BHP spent billions of dollars on infrastructure in Canada.
The Globe and Mail, citing people familiar with the situation, said BHP concluded negotiations with Investment Canada over the weekend, and the Anglo-Australian miner had satisfied the concerns of Canadian officials.
The government strenuously denied both reports.
"It is unfortunate that Postmedia chose to run a story without checking facts first, as it has misled many and invoked some unnecessary reactions that have led to further erroneous news reports across Canada and the world," Clement's statement said, referring to the company that owns the National Post.
The National Post said it stood by its story.
"We have two sources on this story who have proven themselves over many years to be both reliable and cautious. Until we've seen something more compelling than a government denial, we will stand by the story," said Stephen Meurice, editor-in-chief of the National Post, in an e-mail.
Additional reporting by Cameron French and Pav Jordan in Toronto; and Rod Nickel in Ottawa; Editing by Frank McGurty