October 20, 2010 / 4:58 AM / 7 years ago

WRAPUP 2-BHP's Potash bid faces pressure from Canadian province

* Saskatchewan province to advise federal govt on bid

* Saskatchewan to oppose bid, wants C$3 bln compensation

* BHP confident it can address province's concerns

* Several analysts see deal being approved after more talks

By Rod Nickel and Eric Onstad

WINNIPEG/LONDON, Oct 20 (Reuters) - Canada's Saskatchewan province has opposed BHP Billiton's (BLT.L) hostile bid for Potash Corp (POT.TO), prompting the mining giant to offer more concessions on tax revenue to get the $39 billion deal approved.

Canada's federal officials have the final decision on whether to approve the deal and some analysts said the tough line taken by Saskatchewan appeared to be part of the negotiating process.

"I think it's wrangling rather than anything more serious. There's a lot that BHP is willing to do in order to ensure that this deal is a success," said analyst Charles Kernot at Evolution Securities in London.

The Canadian province said talks had broken down with BHP after the miner failed to meet its demands.

BHP, the world's biggest mining company, offered Saskatchewan only a fraction of the C$3 billion ($2.9 billion) over 10 years that the province is seeking to make up for expected revenue losses, the province said in a statement late on Tuesday.

Saskatchewan will now give the bid an unfavourable review later this week, a source familiar with the matter said, possibly leading to the Canadian government quashing the deal.

BHP said it was confident about addressing the tax-loss concerns and was working with the Canadian government's Investment Review Division (IRD) on making additional "significant" undertakings to get a deal across the line before a decision is due on Nov. 3.

Potash's Canadian shares gained 2.1 percent on Tuesday, which some analysts pointed to as evidence that investors still expect BHP to prevail, but with a higher bid, since the shares are about 10 percent above BHP's $130 per share offer.

Potash has flatly rejected BHP's bid and has repeatedly said it expects other offers, although none have emerged.

BHP shares in London added 1.4 percent by 1030 GMT, largely in line with the British mining index .FTNMX1770

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TAKE A LOOK on BHP's Potash bid [ID:nN22340110]

SCENARIOS-What could happen to Potash Corp? [ID:nN15201930]

Value investor view on Potash Corp bid: [ID:nRTV153281]

BHP/Potash timeline graphic: link.reuters.com/nav26p

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"BHP Billiton is confident it can address this concern and, in this regard, is prepared to make commitments which go beyond the requirements of prevailing Canadian legislation that should effectively address the tax loss concerns of the province," the miner said in a statement.

BHP spokesman Ruban Yogarajah in London said the group's focus was on the federal review process. "We would have preferred to have the support of the province, but in the end this is a decision for the federal minister of industry."

Saskatchewan, where Potash Corp, the world's top fertilizer producer is based, will play a key advisory role as the Canadian government decides whether to approve BHP's bid on the basis of whether it offers a net benefit to the country.

"At the heart of any 'net benefit' calculation is the people of Saskatchewan being compensated for the C$3 billion in revenue Saskatchewan will lose over the next 10 years as a result of a BHP Billiton takeover of Potash Corp," the provincial government said. "This would need to happen before we would even consider supporting the deal."

BHP offered a C$370 million one-time payment into an infrastructure fund, the statement said, adding it "doesn't even come close to offsetting the province's revenue loss."

Nomura analyst Paul Cliff in London said he expects the deal to be approved in the end, although provincial support was important due to the minority status of the federal government.

"As the 10-year cumulative net loss to the province of Saskatchewan... is relatively small in the greater scheme of a $45-50 billion acquisition, we expect BHP is likely to propose measures to ensure there is an economic net benefit to Saskatchewan," Cliff said.

BHP said the tax concerns were mainly due to tax deferrals which were permitted under Canadian laws, adding it could make commitments beyond those laws to address the issue.

A report by the independent Conference Board of Canada, which was commissioned by Saskatchewan, said on Oct. 8 that a BHP takeover was preferable to a takeover by a state-owned Chinese entity. The board also warned Saskatchewan that opposition to the bid could hurt investment prospects and junior potash companies. [ID:nN04140248]

The report said BHP's bid could cost the province as much as C$5.7 billion ($5.5 billion) under current tax rules if BHP acquires Potash, maximizes production and develops its own Jansen project in Saskatchewan.

The cost of building the Jansen potash mine, which would be the world's biggest, could offset taxes that existing Potash Corp mines pay to Saskatchewan.

Saskatchewan Premier Brad Wall will speak on the bid on Thursday in the provincial capital of Regina.

Despite BHP's confidence, a Canadian-based lawyer said it was important to keep Saskatchewan on side.

"The provincial response will certainly be highly persuasive at the federal response level," said Darryl Levitt, a Toronto lawyer at Macleod Dixon who is not involved in the deal.

BHP may still be under pressure to make concessions to Saskatchewan, he said, possibly including a "golden share" that would give the province authority over how the company operates in Saskatchewan. ($1=$1.03 Canadian) (Additional reporting by David Ljunggren in Ottawa, Euan Rocha in Toronto, Sonali Paul in Melbourne and Michael Smith in Sydney; Editing by Anshuman Daga and Andrew Callus)

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