* C$4.50/share bid backed by Potash One board
* Eyes $2.5 billion in investments to develop new mine
* K+S shares down 2 pct, Potash One up 25 percent
(Adds Saskatchewan official comments, potash background,
updates share activity; in U.S. dollars unless noted)
By Ludwig Burger and Rod Nickel
FRANKFURT/WINNIPEG, Nov 22 German fertilizer
producer K+S AG SDFG.DE is buying Canada's Potash One
KCL.TO for C$434 million ($428 million), joining a rush for
scale in an industry that will play a crucial role in feeding
K+S's C$4.50-a-share offer, a 31 percent premium to the
average price over the previous 10 sessions, comes less than
three weeks after Canada blocked a $39 billion hostile bid by
BHP Billiton (BHP.AX) for Potash Corp (POT.TO), the industry's
Unlike that bid, K+S said its takeover would not be subject
to a review under the Investment Canada Act. The law, which
stipulates a foreign takeover must carry a "net benefit" for
the country, was the basis of Ottawa's rejection of BHP's
In K+S's case, the value of Potash One's assets -- as
opposed to the deal value -- falls well short of Investment
Canada's C$299 million threshold, said a lawyer specializing in
foreign investment at a large Canadian law firm. The source,
who was not authorized to speak on the matter, asked not to be
K+S said on Monday it made its cash offer for Potash One as
it looks to build up new reserves to replace domestic deposits
it expects will be depleted in about four decades.
"The offer complements our growth strategy to expand our
potash capacities and our average mine life," Chief Executive
Norbert Steiner said.
A wave of interest in potash and other soil nutrients has
surfaced this year, with corn and wheat prices touching
two-year highs. That has given farmers more incentive to spend
money on boosting crop yields.
Over the long term, income growth and a move to more
protein-rich diets in developing countries like China and India
have fueled bullishness around the fertilizer sector.
For a graphic of world potash reserves, click on:
The deal, subject to Potash One shareholder approval, is
expected to close in the first quarter of 2011 and ends months
of speculation over K+S's plans.
K+S had talked with Russia's Andrei Melnichenko and his
EuroChem fertilizer group about jointly developing the
Verkhnekamsk potash deposits in the Ural Mountains. But
Melnichenko walked away from the negotiations last month.
K+S shares were down 2 percent at 48.25 euros on Monday.
Potash One shares jumped 25 percent to C$4.51.
K+S said Potash One held several potash exploration
licenses, the most advanced being its Legacy project in the
Western Canadian province of Saskatchewan, with a capacity of
up to 2.7 million tonnes of potash a year.
That province is also home to the main operations of the
world's largest fertilizer producer, Potash Corp.
"The realization of this production capacity would
represent an approximately $2.5 billion capital investment into
Saskatchewan and create up to 300 highly skilled jobs," K+S
said, adding it expects the Legacy project to come on stream no
earlier than 2015.
Saskatchewan's provincial government fought to block BHP,
but it supports K+S' entry, said its top elected official,
Premier Brad Wall.
"We welcome this kind of investment," Wall said, noting
that both K+S and Brazil's Vale SA (VALE5.SA) have shown
interest since Canada's refusal of BHP.
"You can say no and still have a welcoming business
climate. Nobody burst into flames."
Starting a new mine would boost Saskatchewan's revenue from
the potash industry and create hundreds of jobs, Wall said.
That said, proposed new mines from K+S, Vale and BHP, along
with brownfield expansions by existing players, raise some
concerns about future over-production of potash that could
weaken prices of the nutrient, Wall said. Saskatchewan collects
royalties from its potash producers based on a price-sensitive
Legacy is one of only a handful of advanced potash
development projects in the world, said analyst Joel Jackson,
who covers Potash One for BMO Capital Markets in Toronto
K+S appears to be serious about building the mine given
that it has subscribed to a C$30 million debenture from Potash
One to fund construction of infrastructure at the Legacy
project, Jackson said in an interview.
"That to me would signal K+S's intention to advance the
project as opposed to merely locking up a reserve," he said.
The deal also has the benefit of driving down the average
cost of K+S's high-cost potash mines, Jackson said.
It's unlikely a better bid will emerge, given the C$16.5
million break fee, board approval and premium takeout multiple,
Robert Winslow, an analyst who covers Potash One for Wellington
West Capital Markets in Toronto, said in a note to clients.
A K+S spokesman said the takeover price would be financed
using the group's cash reserves as well as credit facilities
and would not require a capital increase. He declined to
comment on the funding of future investment needs in Canada.
The takeover offer comes less than two weeks after Potash
One's Legacy project cleared a key regulatory hurdle.
National Bank Financial Inc is acting as exclusive
financial adviser to Potash One.
(Additional reporting by Michael Erman in New York and Pav
Jordan in Toronto; editing by Frank McGurty)