(Repeats to broaden distribution)
* Now cheaper potash firms may be takeover targets
* Deals would still be costly, may face hurdles
By Michael Erman
NEW YORK, Sept 25 It seems like an investment
banker's dream: A handful of companies dominate the market for
a mineral needed to feed the world, and share prices are down
60 percent since last year, perhaps making them ripe for the
The mineral is potash, a crop nutrient that was until
recently little known outside the farm sector. An essential
input for rice, corn and other foods, it's now a hot commodity,
spurring speculation about multibillion-dollar deals.
Most of the talk centers on whether global mining giants
BHP Billiton (BHP.AX) (BLT.L) or Vale (VALE5.SA)(VALE.N) could
bid for big potash players, but there's also a chance that big
importers China or India could try to squeeze out the middleman
by buying a supplier.
Vale and BHP already have modest potash holdings that could
be parlayed into a commanding position. Vale denies it's
interested in acquisitions to expand its fertilizer portfolio,
although BHP is a touch more coy about whether it would
consider a buy. [ID:nSYD454495]
"One thing Vale and BHP understand very well is the benefit
of oligopolies," said one banker who works in the industry,
referring to industries dominated by a small group of
suppliers. "Iron ore is a big business -- look how it works. If
they do the same thing in potash, it makes some sense."
Eight companies currently control more than 80 percent of
the world's supply: Potash Corp of Saskatchewan (POT.TO),
Mosaic Co (MOS.N) and Agrium Inc (AGU.TO) in North America; K+S
SDFG.DE, Uralkali (URKA.MM), Silvinit SILV.RTS and
Belaruskali in Europe; as well as Israel Chemicals (ICL.TA).
WATCH THE PRICE
The key to any deal is the price of potash and the
direction it's heading.
The price has more than halved from last year's high of
about $1,000 a tonne. But it remains high in historical terms
and should rise further over the next decade as demand for food
and fertilizer rises. Analysts say that makes deals more
For BHP or Vale, buying a rival may be cheaper than
spending billions of dollars to build up their own potash
mines, depending on the stock price of the target company.
"It will have everything to do with where the public market
valuations go relative to what (Vale or BHP) think they can
build their own organic projects for," said one investment
banker, who spoke on the condition of anonymity.
Potash company stocks have fallen some 60 percent from
their 2008 highs. But they have doubled in the last three years
as potash prices outperformed those for other commodities, and
a deal would cost billions of dollars.
The market capitalization of Potash Corp, Mosaic and
Agrium, the three largest North American producers , is $26.4
billion, $21.8 billion, and $7.5 billion, respectively.
For BHP or Vale, the question ultimately comes down to
whether they could find better value by investing in metals or
even oil than by buying a potash producer.
"People always talk about those things, but in my view
they'll never happen," said another investment banker who works
in the industry.
"The people that own those (potash) assets really believe
in the recovery ... Why would any board sign off on selling the
company for anything other than the peak of their valuation?"
(Editing by Frank McGurty and Janet Guttsman)