October 5, 2010 / 3:07 PM / 7 years ago

UPDATE 1-Potash Corp slams report on BHP takeover proposal

* Asks gov’t to remain open to reviewing alternative bids

* Says report downplays possible losses faced by province

* Potash Corp shares slip in morning trade (Adds details from Potash Corp statement, background; All figures in U.S. dollars, unless noted)

By Euan Rocha

TORONTO, Oct 5 (Reuters) - Potash Corp (POT.TO) slammed a report commissioned by the province of Saskatchewan that favors BHP Billiton’s (BHP.AX)(BLT.L) $39 billion offer for the fertilizer maker over a potential bid from a state-owned Chinese entity.

The company, based in Saskatoon, Saskatchewan, said the report understates that the royalty revenue that the province could lose should the Anglo-Australian miner’s hostile bid succeed.

The report, prepared by the Conference Board of Canada and released on Monday, cautioned the provincial government against thwarting BHP’s takeover bid. It said that would depress Potash Corp’s share price and could have a negative impact on new investment in the province.

Potash Corp shares rose about 2 percent on Monday on the view that the report made it more likely that BHP would carry the day. On Tuesday the stock slipped nearly 1 percent to C$146.52 in early trade on the Toronto Stock Exchange.

Potash Corp, the world’s top fertilizer supplier, has rejected BHP’s $130-a-share offer as “grossly inadequate,” and has encouraged other parties to step forward with alternative bids. So far none have surfaced.

Saskatchewan is reviewing the report and will submit its views to the federal government in early November on whether Ottawa should approve a takeover by BHP. Under law, any takeover must carry a “net benefit” to Canada.

“The board of directors of Potash Corp would encourage the government of Saskatchewan to continue to remain open to reviewing alternative bids on a fact-based approach, rather than the speculative approach taken by the Conference Board of Canada’s report,” Potash Corp said in the filing.

Saskatchewan Energy Minister Bill Boyd said on Monday that the province has not ruled out any option -- endorsing or opposing BHP’s bid, or suggesting conditions -- as it prepares its recommendations to Ottawa. [ID:nN04140248] <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

For more stories on BHP/Potash: [ID:nN22340110]

Timeline: link.reuters.com/nav26p

Potash market overview: [ID:nSGE67J088]

Factbox on Potash Corp, BHP Billiton: [ID:nN17274108]

Global potash reserves link.reuters.com/beq55n

Potash production link.reuters.com/dyz36n ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

UNDERSTATES LOSSES

Potash Corp argues that the Conference Board’s report understates the potential revenue loss faced by the province in the event of a BHP takeover of Potash Corp.

“The report chose to assume that BHP would not operate full out in direct contradiction of previous BHP public statements,” said Potash Corp.

The province in its statement about the report said the Conference Board estimated that a BHP takeover would cost Saskatchewan at least C$2 billion over 10 years.

But the report also noted that a successful BHP bid could cost the province as much as C$5.7 billion under the current royalty regime. That worst-case scenario for the province would unfold if BHP acquires Potash Corp, maximizes production and develops its own Jansen project in Saskatchewan.

If Potash Corp’s mines are run at full capacity, global supply would surpass demand and depress potash prices, hurting provincial royalty revenues, which favor price over volume.

The current royalty regime also allows companies to cut their payments by offsetting them against capital spent on expansions and new projects.

If it succeeds in its bid, BHP has indicated that it would carry through on developing its 8 million tonne a year Jansen project, while also pushing ahead with Potash Corp’s own expansion projects. That in turn would immediately result in significant royalty losses for the prairie province.

The Conference Board also said the revenue decline outlined in the report also fails to take into account a potential decline in corporate income taxes that the province may face.

Last week, Saskatchewan’s Premier Brad Wall said he is concerned that BHP could use the interest it is charged for borrowing money to complete the takeover to write-off corporate income taxes. [ID:nN29282696] ($1= $1.02 Canadian) (Reporting by Euan Rocha; Editing by Frank McGurty)

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