OTTAWA Canada blocked BHP Billiton's> blockbuster $39 billion bid for Potash Corp on Wednesday and offered only the slimmest of chances that the offer could be modified or revived.
Following government guidelines, Industry Minister Tony Clement gave the Anglo-Australian miner 30 days to come up with additional proposals that might make its offer for the world's largest fertilizer producer more palatable to Canada.
But given weeks of negotiations between BHP and Ottawa about how the mining giant should shape its offer, the biggest takeover bid of 2010, a new proposal seems unlikely at best.
"Some decisions can only be taken once and there is no turning back ever - such as the case today," Clement said as he announced his surprise decision, news that sent Potash Corp shares down some 5 percent in after-the-bell trade.
"I can confirm that I have sent a notice to BHP Billiton indicating that, at this time, I am not satisfied that the proposed transaction is likely to be of net benefit to Canada."
Potash Corp repeated its view that the $130-a-share offer was "wholly inadequate," and analysts said the shares were unlikely to tumble back to the pre-offer levels around $112, given a rising market and strong fundamentals in the fertilizer market. Even without any bid at all, the company's shares are expected to rise in the medium term.
BHP, whose shares opened 3.2 percent higher in Australia, said it was disappointed with the decision and was reviewing its options.
BHP launched its bid for Saskatchewan-based in August, seeking an entry into the lucrative fertilizer sector. But the Potash stock consistently traded above the offer price, indicating that investors thought a higher offer would come.
NET BENEFIT TO CANADA
Under the Investment Canada Act, a foreign takeover must have a net benefit for the country in terms of jobs, exports, production and investment. The Canadian government had previously blocked a foreign takeover only once before.
But this decision had always been a thorny one for a minority Conservative government that needed to weigh political considerations against the desire to ensure that Canada stayed open for business.
Blocking the deal is bound to weigh on investors' perceptions of Canada, even though it was only the second time that Ottawa has rejected a foreign takeover since the Investment Canada Act came into force.
The Conservatives have most of the seats in Saskatchewan, the Prairie province where Potash Corp is based, and fervent Saskatchewan opposition to the bid meant they risked losing those seats in an election that's likely take place next year.
Saskatchewan, which has vast potash resources, argued that it would lose tax and royalty revenues if the deal went through. It said it would be wrong to let a resource as strategic as potash fall into foreign hands.
"I think it comes as a shock to the market," said John Stephenson, senior vice president at First Asset Investment Management Inc.
"I think it goes in the face ... of the direction of the government of Canada for the last number of years, which is we're open for business. Clearly, we're sending a signal that no, we're not."
BHP launched its offer for Potash Corp as population and income growth in developing countries like China and India create a bullish long-term outlook for fertilizer and food production.
The takeover would have still needed approval from the Saskatchewan securities regulator and Potash shareholders later this month.
(Writing by Janet Guttsman; Editing by Frank McGurty)