TORONTO Canada's Potash Corp (POT.TO) slammed a report commissioned by its home province that favors BHP Billiton's (BHP.AX)(BLT.L) offer to buy the fertilizer maker over a potential bid from a state-owned Chinese entity.
The company, based in Saskatchewan, said the report understates the royalty revenue that the province could lose if the Anglo-Australian miner's $39 billion hostile bid succeeds, while overestimating the impact another winning bid might have.
The report, prepared by the Conference Board of Canada and released on Monday, said a successful alternative bid led by a state-owned Chinese entity would hit the provincial coffers even harder than BHP's.
"The board of directors of Potash Corp would encourage the government of Saskatchewan to continue to remain open to reviewing alternative bids on a fact-based approach, rather than the speculative approach taken by the Conference Board of Canada's report," Potash Corp said in a regulatory filing.
Potash Corp shares rose about 2 percent on Monday on the view that the report made it more likely that BHP would carry the day. On Tuesday the stock closed down 1.6 percent at C$145.40 on the Toronto Stock Exchange.
That's still much higher than BHP's $130-a-share offer price, which Potash Corp has rejected as "grossly inadequate."
Potash Corp -- the No.1 supplier of an agricultural input that China and other countries need to feed their growing populations -- has encouraged other parties to step forward. So far none have surfaced.
China's state-owned chemical giant Sinochem (600500.SS) is viewed as the most likely to emerge with a competing offer -- a prospect that Monday's report cast in a negative light.
It said the interests of the province would line up more closely with BHP's than with those of any Chinese-led rival bidder. China, as one of the world's top consumers of the crop nutrient, would prefer to keep potash prices low, a strategy that could hurt Saskatchewan under its current royalty regime.
Saskatchewan is reviewing the report and will submit its views to the federal government in early November. Under law, any takeover must carry a "net benefit" to Canada.
Saskatchewan Energy Minister Bill Boyd said on Monday the province has not ruled out any option -- endorsing or opposing BHP's bid, or suggesting conditions -- as it prepares its recommendations to Ottawa.
Canadian Industry Minister Tony Clement said on Tuesday Ottawa is monitoring developments, but he declined to comment on the report.
The province in its statement about the report said the Conference Board estimates a BHP takeover would cost Saskatchewan at least C$2 billion over 10 years, but said the damage could go as high as C$5.7 billion.
That worst-case scenario for the province would unfold if BHP maximizes production and develops its own Jansen project in Saskatchewan.
If Potash Corp's mines are run at full capacity, global supply would surge and depress potash prices, hurting provincial royalty revenues, which favor price over volume. The current rules allow companies to cut payments by offsetting them against capital spent on capacity expansions.
If it succeeds in its bid, BHP has indicated that it would carry through on developing its 8 million ton a year Jansen project, while also pushing ahead with Potash Corp's own expansion projects. That would hit the prairie province hard.
"The report chose to assume that BHP would not operate full out in direct contradiction of previous BHP public statements," said Potash Corp in a statement that criticized the report.
Potash Corp also accused the Conference Board of ignoring the company's position. It said it had informed the review panel that it is seeking assurances from other parties that have expressed an interest in the company.
Potash Corp said it is asking them to commit to selling potash through Canpotex -- the overseas potash marketing company jointly owned by Potash Corp, Mosaic Co (MOS.N) and Agrium Inc (AGU.TO).
BHP has indicated it would prefer to market all its product on its own, outside the Canpotex framework. This could spark price wars between global potash producers, hurting Saskatchewan's revenue.
Potash Corp said it also sought assurances from other potential bidders that they seek to maximize profits, rather than work to keep potash prices low, as critics fear a Chinese entity would do.
"The company believes and told the Conference Board that such assurances would be integral to any alternative expressions of interest. The Conference Board chose to ignore Potash Corp's position in its report," said the company.
The Conference Board defended its stance in the report.
"We appreciate Potash Corp of Saskatchewan sharing its perspective with us as we did the research for this study. We stand by our report," said Glen Hodgson, one the authors of the report, in an e-mail.
Separately, the legal battle between Potash Corp and BHP took a fresh turn on Tuesday, with BHP asking the court to allow the discovery process to proceed. BHP have asked for Potash Corp documents relating to potential alternative bidders and its own internal evaluation of what its stock is worth.
Potash Corp in turn has asked the court for a protective order that would stymie BHP's request, arguing that BHP is seeking confidential strategic information that would give it an unfair business advantage.
The wrangling over documents stems from Potash Corp's lawsuit seeking a preliminary injunction to block BHP's hostile offer. BHP has already filed a motion asking the court to dismiss the suit.
(Reporting by Euan Rocha; Editing by Frank McGurty)