Potash Corp sues BHP as takeover struggle escalates

TORONTO Thu Sep 23, 2010 2:21am EDT

A man walks out of the head offices of BHP Billiton in central Melbourne in this September 22, 2010 file photo. REUTERS/Mick Tsikas

A man walks out of the head offices of BHP Billiton in central Melbourne in this September 22, 2010 file photo.

Credit: Reuters/Mick Tsikas

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TORONTO (Reuters) - Potash Corp (POT.TO) filed a lawsuit against BHP Billiton (BHP.AX) (BLT.L) on Wednesday to fend off the miner's $39 billion hostile takeover bid, intensifying the Canadian fertilizer supplier's struggle to find a more attractive offer.

The lawsuit, filed in a U.S. District Court in Chicago, alleges BHP misrepresented material facts related to its bid for the world's largest producer of potash -- a key crop nutrient. It also accuses BHP of fraud related to the offer.

BHP said the suit lacked merit and vowed to defend itself. In a statement, the Anglo-Australian mining company also said it believes the suit won't delay the takeover process.

"This lawsuit seems to be their answer to the absence of another bidder emerging, and it's surprising that they would try to deprive their shareholders of the only offer on the table," said a BHP spokesperson who spoke on the condition that he not be identified by name.

The lawsuit is the latest gambit in Potash's month-long fight against BHP's $130-a-share offer, which it has flatly rejected as inadequate. But Potash is not insisting on independence either.

Last week, media reports said Potash Corp was attempting to assemble a consortium to back a management-led buyout, possibly involving Sinochem, China's state-owned chemicals group.

China is worried about a takeover by BHP because it needs low-cost fertilizer to nourish crops to feed its growing population, while Potash Corp's home province of Saskatchewan is concerned that a successful BHP bid could eventually drive down government revenue.

Despite appearances to the contrary, the purpose of Potash Corp's suit is not to force BHP to walk away, sources close to the matter said.

"The injunction is designed to stop the deal until the truth comes out," one source said. "The suit is to enjoin future and further violations of the law, not to actually make sure there is no offer."

Potash Corp has asked the court to resolve the litigation before the November 18 deadline on BHP's bid, the source said.

The suit claims BHP sought to drive down the Canadian company's perceived value by trumpeting its own plans to enter the potash business. That way, the suit argues, BHP could eventually make a bid for Potash Corp at a low enough price to avoid triggering a BHP shareholder vote.

Under British law, a shareholder vote is required if a company attempts a takeover that exceeds 25 percent of its own market valuation.

At $39 billion, or $130 a share, BHP's current offer allows it to avoid a vote that could scupper a deal.

Before bidding for Potash Corp, BHP was focused on building the huge Jansen potash project in Saskatchewan. Slated to begin production around 2015, Jansen has the potential to rank as the world's largest potash mine.

"To suggest our plans to develop Jansen was a ruse is absurd," said the BHP spokesperson. "We have repeatedly reaffirmed to the governments of Saskatchewan and Canada our commitment to continue advancing the project."

"STALLING TACTIC"

Litigation such as Potash Corp's is a standard tactic that takeover targets use to stall, legal experts say, and rarely do such suits alter the outcome of a battle.

"Litigation ... accomplishes only modest goals of giving the target a window into the bidder and some delay, some smoke," said John Coffee, a professor at Columbia Law School in New York. "It is very unlikely to result in a permanent injunction that ends the contest."

Potash Corp's U.S.-listed shares ended down $1.19 at $146.33 on Wednesday, but are still trading well above BHP's $130 offer, suggesting investors anticipate a higher bid.

Many observers expect a competing bid to involve a Chinese entity such as Sinochem, which has hired two investment banks to advise it on options.

The case is Potash Corp v. BHP Billiton in the U.S. District Court for the Northern District of Illinois Eastern Division, No. 1:10-cv-06024.

(Additional reporting by Michael Erman in New York, Pav Jordan in Toronto and Tom Hals in Wilmington, Delaware; Editing by Frank McGurty and Peter Galloway)

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