Potash pursues deal with possible white knights

TORONTO/NEW YORK Mon Aug 23, 2010 10:29am EDT

A train car waits in line at the Potash Corp's Cory mine site near Saskatoon August 19, 2010. REUTERS/David Stobbe

A train car waits in line at the Potash Corp's Cory mine site near Saskatoon August 19, 2010.

Credit: Reuters/David Stobbe

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TORONTO/NEW YORK (Reuters) - Canada's Potash Corp has been in contact with China's Sinochem and other possible counter-bidders as it fights off an unwanted $39 billion takeover offer from BHP Billiton.

Potash, the world's largest fertilizer supplier, said it expected an alternative to emerge after BHP formally launched its $130 per share hostile bid last week.

Potash Chief Executive Bill Doyle, who stands to make a half-billion-dollar payday from any deal, told Reuters "all sorts of different players" had approached his company and that BHP's offer had "no traction whatsoever" with shareholders.

"Potash Corp has been approached by, and has initiated contact with, a number of third parties who have expressed an interest in considering alternative transactions," the company said in a statement on Monday.

"Discussions are being pursued with several of these third parties in order to generate value enhancing alternatives."

Potash did not name the parties, but a source close to the matter said discussions have been held with Sinochem, China's top fertilizer firm, biggest chemical trader and No. 4 oil firm.

"One wants to explore all the options -- and you can't do that by telekinesis," said the source, who asked not to be named.

Separately, a second source confirmed that Potash Corp was considering joint ventures with third parties as an option.

Potash urged its shareholders not to tender their shares to the BHP offer, which has an October 19 deadline for what may be the world's biggest takeover this year.

Potash had already branded the bid as "grossly inadequate" and undervaluing the firm but pledged to look at BHP's official offer documents before making a recommendation to shareholders.

Media reports mentioned Brazil's Vale and Chinese private equity fund Hopu Investment Management as others that may be interested in a bid.

Citing persons with knowledge of the matter, Bloomberg said Vale had made inquiries with the board of Potash late last week and the Wall Street Journal said a consortium led by Hopu was studying the feasibility of a bid.

Other consortium members were investors from Canada, the United States and Asia, but Sinochem was not a member, the Journal said. Officials with Hopu and Vale contacted by Reuters declined to comment.

NO IMMEDIATE PLANS

Two sources with direct knowledge of the matter said Hopu did not have any immediate plans to pursue a bid for Potash.

Even with a consortium, Hopu would have limited money to add, having raised a $2.5 billion private equity fund in 2008 that it has been actively investing.

China Investment Corp., the $300 billion sovereign wealth fund, is the only Chinese investor with the kind of money and investment record that could counter the BHP bid, they added.

A Sinochem official did not have any knowledge of the reported contact with Potash Corp.

"We think it's credible that Sinochem are interested but view them as a relatively minor threat to BHPB as they won't be able to go for whole thing," said analyst Michael Rawlinson at Liberum Capital in London.

Sinofert, a Sinochem subsidiary, may struggle to raise the cash to mount a full bid and regulators in Canada may also be unhappy with a Chinese state-owned group buying one of its flagship companies, analysts have said.

Sinochem already has ties to Potash Corp as top Chinese fertilizer company Sinofert is 22 percent owned by Potash Corp.

When asked about the impact about the possible purchase of Potash, Li Qiang, head of the Sinochem's president's office, told Reuters: "It will definitely have impact on China's potash market, (and) we are closely watching the issue, and will cautiously evaluate the next development."

China would have a strong interest in Potash Corp's fate as it is the world's largest importer of potash, with a its expanding middle class stepping up food consumption.

Demand is expected to rise for potash, a mineral that helps protect crops from disease and boosts quality, making it essential in a world with diminishing arable land and rapidly growing food needs.

While a Chinese company may be interested in taking a minority stake in Potash Corp, Rawlinson said the Canadian company's board would be wary of such a scenario. "A minority stake at a premium will require some very big off-take/JV concessions which may impinge long-term value," he said.

Vale already has potash interests, so it may be interested, but analysts have said it does not have the balance sheet to take on BHP in a bidding war.

BHP Billiton sees Potash Corp as one of the few takeover targets that would make a difference to its long-term growth.

Investors in Potash said in a Reuters poll last week they think BHP's bid could succeed if it sweetens its offer by a quarter to $162 per share.

Potash shares in New York closed on Friday at $149.67, up a third since BHP's bid was unveiled.

BHP's shares in London gained 1.9 percent to 1855 pence by 1250 GMT, in line with the UK mining index as the sector rose after an inconclusive election in Australia boosted prospects of a proposed new mining tax being scrapped.

(Additional reporting by Tracy Zheng in Beijing; Michael Flaherty and Joseph Chaney in Hong Kong; and Vivian Pereira in Sao Paulo; Writing by Eric Onstad; Editing by David Cowell and Michael Shields)

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