SYDNEY/TORONTO BHP Billiton formally launched its hostile takeover bid for Potash Corp on Friday but a poll of investors suggested the world's biggest miner would need to significantly raise its $39 billion offer to capture the top fertilizer producer.
Potash Corp is already soliciting bidders willing to pay more than BHP's offer of $130 a share, a source close to the matter said, prompting speculation that China, one of the world's biggest potash importers, may join the fray.
The source said Potash Corp was confident it could attract a competing bid, given the expectation for rising demand for potash, an important crop nutrient.
The shrinking availability of arable land in China and its
limited domestic supply of potash has increased the importance of the nutrient for the world's most populous nation, where a growing middle class is increasing food consumption.
BHP officially kicked off its hostile offer on Friday, taking out full-page advertisements in Canadian and U.S. newspapers. The bid will remain open until October 19.
In its offer, BHP said that if it is successful in taking over Potash Corp, it would ultimately look to pull out of Canpotex -- the marketing conglomerate through which Potash Corp, Mosaic Co and Agrium Inc export the nutrient.
BHP has traditionally shunned arrangements like Canpotex, through which the three big Saskatchewan producers have jointly negotiated pricing on contracts.
"BHP Billiton will work with the Canpotex shareholders in order to further understand existing agreements and establish the basis for a relationship that provides for continuous and undisrupted supply to export markets and ultimately permits BHP Billiton to market its potash independently," the company said in a filing with U.S. regulators.
The company said it would honor existing commitments and contractual arrangements Potash Corp has with Canpotex.
BHP faces an uphill battle as it tries to sell to shareholders a bid that Potash Corp has rejected as inadequate.
A Reuters survey of large 11 shareholders suggested that a deal could be done at $162 per share, or a total of $48 billion. A survey of 15 analysts produced an average answer of $157 per share, or $46.6 billion.
A leading expert on Canadian corporate takeover law said the fact that BHP had put a 60-day timeframe on its offer meant that it was probably not concerned that a rival bid could be filed and approved by regulators within that time.
"They may have decided they are still comfortable that no one else could get in in under 60 days, given various regulatory and other approvals under the Investment Canada Act and Competition Act," said the lawyer, who asked not to be identified for business reasons.
"It's not going to happen for anybody in less than 60 days, so why not offer 60 days."
Potash Corp advised its shareholders to ignore the BHP bid until it could review the offer documents.
The company, based in the western province of Saskatchewan, declined to comment about possible rival bidders.
The union that represents Potash Corp's Saskatchewan mine workers also said it was concerned about the possibility of a successful BHP bid, asking the Canadian government to hold public hearings before approving the takeover and demanding BHP spell out job guarantees and investment plans.
SINOFERT LOGICAL CANDIDATE
Top Chinese fertilizer company Sinofert -- which is 22 percent owned by Potash Corp -- is the most logical candidate to lead a competing offer, industry sources say.
Sinofert itself is small -- its $3.8 billion market value is less than a 10th of Potash's.
But its parent, Sinochem Group, is a huge state-owned group with revenue of $36 billion last year.
A spokesman for Sinofert said the company would "pay close attention" to BHP's bid, adding that the group "was interested in overseas potash investment opportunities," the Financial Times reported.
Aluminum giant Chalco and state-backed chemicals company ChemChina could also emerge as bidders, said the sources who spoke to Reuters.
A Sinofert spokeswoman contacted by Reuters declined to comment, while Chalco and ChemChina could not be reached.
"I assure you there are numerous organizations in China who would chase potash (assets)," said an Asian-based investment banker who has advised Chinese resource companies on overseas deals.
"China has very few potash reserves for itself. It's a commodity which they're going to be in short supply of. And does China want to be over the barrel on yet another commodity?" said the banker, who was not authorized to speak publicly about the matter.
BHP's close rival, Rio Tinto, has also been touted as a potential -- albeit unlikely -- "white knight" for Potash.
Rio Chief Executive Tom Albanese declined comment on Friday on whether Rio would consider a rival bid.
Both Rio and BHP were preoccupied on Friday fending off speculation their $116 billion iron ore joint venture would not get regulatory approval.
India, China, the United States, and Brazil are the largest users of potash, but long-term trends suggest China will soon surpass all others.
At $39 billion, BHP's takeover offer is the highest in any industry this year.
Reflecting anticipation of a sweeter bid, Potash's New York-listed shares have jumped by about a third since the offer emerged, valuing the company at about $44 billion.
The shares rose 0.6 percent to $149.67 on Friday in New York and were ahead 1.4 percent in Toronto at C$157.06.
BHP shares fell 1 percent in Sydney on Friday in a weak broader market and were largely flat in London.
Potash Corp CEO Bill Doyle, dubbed by the media as "Fertilizer King" when potash prices spiked in 2007-08, stands to make up to $500 million if the company is taken over.
BHP CEO Marius Kloppers is betting an increasingly hungry world will pay dearly for potash.
About 150 countries use potash for their crops, but it is only produced in about a dozen.
From the cane fields of Brazil to the rice fields of India and China, potash is an essential nutrient to improve the resistance of plants to disease and to boost crop quality.
Eight companies control more than 80 percent of global supply: Mosaic, Agrium, K+S, Uralkali, Silvinit, Belaruskali, Israel Chemicals and, at the top of the heap, Potash Corp.
Russia moved closer to creating what could be the world's second-largest potash miner after Potash Corp when investors friendly to billionaire Uralkali owner Suleiman Kerimov acquired stakes in rival Silvinit this month.
On Thursday, Uralkali said powerful Kremlin deal broker Alexander Voloshin may soon join the company's board.
(Reporting by Michael Smith in Sydney and Euan Rocha in Toronto; Additional reporting by Rujun Shen and Jason Subler in Shanghai, Joseph Chaney in Hong Kong, Scott Haggett in Calgary, Rod Nickel in Saskatoon, Jennifer Kwan and Pav Jordan in Toronto; Writing by Anshuman Daga, Eric Onstad and Michael Erman; Editing by Phil Berlowitz, John Wallace and Rob Wilson)