(In U.S. dollars)
TORONTO Oct 15 News that China's Sinochem will
not launch a counterbid for Potash Corp (POT.TO), removes one
of the biggest potential obstacles to BHP Billiton's (BLT.L)
$39 billion offer for the Canadian fertilizer giant.
The fate of Potash Corp is far from certain, however, as
other white knights may emerge, and BHP faces regulatory
hurdles on the one hand and demands from Potash Corp for a
higher bid on the other.
Shares in Potash Corp slipped 1.2 percent in New York at
midday on Friday to $145.37, but remained well above BHP's $130
per share bid, suggesting investors are still confident of a
BHP, the world's largest miner with a tradition of
discipline when it comes to takeovers, may even walk away.
For Sinochem's dropped plans to bid [ID:nSGE69E07X]
For a TAKE-A-LOOK on the BHP-Potash saga [ID:nN22340110]
Following are some of the scenarios facing Potash:
Probability: Most likely
With Sinochem out of the picture this is the most likely
scenario because it makes it more difficult for Potash to
convince shareholders there are other bidders and that it is
Potash shareholders had indicated they would need BHP to
raise its $130 per share bid to $162 before accepting an offer,
according to a recent Reuters poll. [ID:nLDE67J0PV]
If BHP sweetens its bid, but still can't win over Potash's
board, it may again take its higher bid directly to
BHP also might persist with its hostile offer and hope
Potash shareholders will be convinced of the bid's merits. For
now, Potash is sticking with its "just say no" defense.
A NEGOTIATED DEAL
This outcome is only possible if BHP is willing to
substantially raise its bid for Potash.
Some analysts argue that it would take an offer of at least
$150 a share, while others say Potash's net asset value alone
is in the region of $160 to $170 a share.
Potash shares touched a high of $240 in 2008.
Some analysts say a deal above $165 a share would hurt
earnings, but that those levels are unlikely.
BHP's bid faces the additional obstacle of needing formal
approval by its own shareholders if it sweetens its offer to a
point where the value of the bid exceeds 25 percent of its own
POTASH FORMS A JOINT VENTURE
Potash could foil BHP's takeover attempt by selling a
portion of its assets into a joint venture at a price that
implies a substantially higher value for the whole company than
BHP's current bid.
Sinochem, China's top fertilizer maker and its No. 4 oil
company, could be a viable joint-venture partner, especially
now that it has abandoned plans for a counterbid for the whole
A Chinese company would ideally seek a supply agreement
deal with Potash in the event of a joint venture. However, any
agreement on this would have to be structured around Canpotex
-- the international marketing arm of potash producers Potash
Corp, Mosaic Co (MOS.N) and Agrium Inc (AGU.TO).
Analysts have also speculated that a consortium of
companies could consider the joint-venture model if they were
unable to secure enough capital for an all-out bid.
REGULATORS BLOCK BID
Canadian regulators rule that the deal is not a "net
benefit" to Canada and the province of Saskatchewan, forcing
BHP to walk away.
Alternatively, regulators could ask for commitments from
BHP that are so onerous that a deal becomes unattractive.
Potash Corp has already offered to relocate several key
executives from Chicago to Saskatoon, removing one of the
advantages that was being offered under BHP's proposal and
weakening BHP's case under a "net benefit" test.
An even less likely scenario is that the deal is quashed
due to national security concerns under the Investment Canada
BHP WALKS AWAY
BHP has a history of being conservative and disciplined on
takeovers. It could walk away, just as it did with an attempted
takeover of Rio Tinto (RIO.L).
Alternatively, it could raise its bid but fail to win over
Potash shareholders and be forced to back out.
Chief Executive Marius Kloppers will want to avoid a replay
of Rio Tinto's 2007 takeover of Canadian aluminum company
Alcan, in which Rio got caught up in a bidding war at the
height of the commodities boom.
OTHER WHITE KNIGHTS
Analysts and investment bankers say that of the other
global miners, only Rio Tinto and Brazil's Vale (VALE5.SA) are
big enough to consider bids on their own.
Vale has said it is not planning a bid for the company. It
already has some potash assets, and is under heavy political
pressure to invest in Brazil. [ID:nN23192967]
Rio Tinto is also viewed as a long-shot bidder. It recently
sold potash assets and is still recovering from its ill-timed
$38 billion takeover of Alcan.
British newspapers said this week that Potash was
considering defensive moves, including a break-up. They also
said Canada's Ontario Teachers Pension Plan had talked to
Singapore investment fund Temasek [TEM.UL] about launching an
offer with Teck Resources TCKb.TO.
Sinochem had also approached Temasek to join a consortium
that might bid, but the state investor had made no decision,
sources have told Reuters. Temasek declined comment on Friday.
Top Canadian pension funds have been approached by the
Chinese to explore teaming up to buy the fertilizer maker, but
declined because of the size of the assets and the cyclical
nature of commodities, neither of which fit their long-term,
conservative investment strategies.
(Additional reporting by Michael Erman in New York, Eric
Onstad in London and Pav Jordan in Toronto; editing by Rob