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WRAPUP 3-Province urges Canada to block BHP's Potash bid
October 22, 2010 / 2:15 AM / 7 years ago

WRAPUP 3-Province urges Canada to block BHP's Potash bid

* Saskatchewan recommends Ottawa block $39 bln proposal

* Province cites concerns over jobs, lost revenue

* Focus to shift to Ottawa’s final ruling on BHP bid

* Federal government under growing political pressure

* Potash Corp shares close higher in New York (Adds fund manager comment, share prices)

By Rod Nickel

REGINA, Saskatchewan, Oct 21 (Reuters) - The Canadian province home to Potash Corp said it opposed BHP’s $39 billion bid to buy the fertilizer supplier, setting the stage for a politically charged final decision by the federal government.

Saskatchewan said on Thursday it would urge Ottawa to block BHP Billiton’s attempt to take over Potash because a successful bid by the Anglo-Australian miner could hurt jobs and revenues in the province.

Potash is one of Canada’s largest resource firms. Demand for its namesake product is set to surge in coming years as China, India and other countries work to feed growing populations.

“In the interests of jobs for Saskatchewan families, in the interest of the quality of life that we prize that is funded by revenues to the government ... we must say no to this hostile takeover,” Saskatchewan Premier Brad Wall said in a speech in the provincial capital Regina.

Under the Investment Canada Act, the federal government can only allow a takeover by a foreign company if it decides the deal would bring a “net benefit” to Canada.

“It’s our government’s belief that the people of Saskatchewan deserve nothing less than a potash industry unequivocally managed, operated and marketed for the benefit of Canada and Saskatchewan,” said Wall, considered a political ally of the ruling federal Conservatives.

TAX IMPLICATIONS

There was little impact on BHP’s shares in Sydney from the widely expected decision. The stock was up 0.5 percent at A$41.42 at 0137 GMT on Friday, outperforming Rio Tinto which lost 0.1 percent but was in line with the broader market.

“There is an expectation that something will be worked out, and BHP will probably have to pay up a little bit,” said Ric Ronge, a portfolio manager at Pengana Capital.

“On the flipside of that, the fundamentals of the potash market appear to be improving as they are negotiating this deal.”

Saskatchewan estimates it will lose about C$3 billion ($2.9 billion) in revenues over the next 10 years if the deal goes through because of the way royalty payments are structured.

If Ottawa allows a takeover to proceed, Wall said, Saskatchewan would make tax changes applicable to BHP that could generate an extra C$3 billion for the province, compensating it for revenue it might otherwise lose.

“This is just another roadblock,” said Soleil Securities analyst Mark Gulley. “To me BHP is prepared to invest only so much in this property.”

The focus of the two-month-old takeover battle now shifts to Ottawa, where the federal government will have to decide whether to stand by its supporters in the prairie province and accept the recommendation to block the bid.

But Prime Minister Stephen Harper will come under pressure to stay true to the pro-business philosophy his minority government has championed and allow the bid to proceed.

“I have a feeling he’s going to say to Brad Wall ‘no’,” said David McGrane, professor of political science at the University of Saskatchewan. If Canada rejects BHP, “a lot of people in Ottawa are going to say to him, ‘you’re sending the wrong signal to investors around the world’.”

Industry Minister Tony Clement said soon after Wall’s speech that the Canadian government would take all points of view into consideration.

“I‘m neither a headwaiter to the premier of Saskatchewan, nor am I a butler to the president of BHP,” said Clement, whose department is conducting the official review. The deadline for a ruling is Nov. 3.

GOVERNMENT CRITICISM

Since BHP revealed its offer, Ottawa has said it would pay close attention to Saskatchewan’s views in light of a takeover’s impact on provincial revenues.

The bulk of Canada’s reserves of potash is located within the prairie province. Potash Corp was once a crown corporation, as companies owned by the state are known in Canada.

Before Wall’s speech, BHP Chief Executive Marius Kloppers said on Thursday he was confident all parties would overcome Saskatchewan’s revenue concerns.

Andrew Mackenzie, chief executive of BHP’s non-Ferrous division, said he was puzzled by Wall’s opposition.

“We’ve lined up a number of net benefits on jobs and on revenues and on bringing back jobs to Saskatchewan,” he said.

In rejecting BHP’s $130-a-share bid, Potash Corp has repeatedly said it expects competing offers to emerge, although none have materialized. The takeover offer is the largest in any industry this year.

Potash Corp shares rose about 0.5 percent to $143.09 on the New York Stock Exchange on Thursday, but the stock is still well above BHP’s offer price, suggesting investors believe the miner may have to sweeten its offer.

($1=$1.02 Canadian)

Additional reporting by Euan Rocha, Julie Gordon and Michael Smith; Writing by Pav Jordan, Editing by Dean Yates

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