* Potash Corp expects superior offer or alternative to BHP
* Advises shareholders not to tender shares to BHP
* Potash has held talks with China’s Sinochem -source
* Investors seek $162/shr bid, analysts $157 -Reuters poll
* Potash shares close up 0.4 pct at $150.20 in New York (Adds Vale says out of running, banker quote, background, updates share price; in U.S. dollars, unless noted)
By Euan Rocha and Michael Erman
TORONTO/NEW YORK, Aug 23 (Reuters) - Potash Corp POT.TOPOT.N said on Monday it has held talks with other possible suitors as it ratcheted up pressure on BHP Billiton BHP.AXBLT.L to raise its $39 billion offer for the world's largest fertilizer producer.
A source close to the matter said China's Sinochem was one of the parties that had discussions with the Canadian company. But Brazil's Vale VALE5.SA -- one company that had been widely pegged as a possible suitor -- pulled itself out of the running.
Potash Corp formally rejected the $130-a-share bid launched last week by the Anglo-Australian mining giant and said it expected an alternative bid to emerge. Shares of Potash have surged above $150, signaling that investors expect a higher bid from BHP or a rival bidder.
“There are a number of people who have contacted us ... all sorts of different players. People would be surprised at what we’re seeing,” Potash Corp Chief Executive Bill Doyle said in an interview. He declined to identify any of the parties.
Still, without Vale as a bidder, the universe of potential white knights is shrinking.
“I don’t think BHP will get it for $130 (a share),” said one banker who is not working on the deal. “But do I see an obvious player to come in as a genuine white knight? No.”
Potash urged shareholders not to tender to the BHP offer, which may well turn out to be the biggest takeover deal in any industry this year.
Doyle, who stands to earn a half-billion dollars from a deal, said that the company was considering all its options including joint ventures and levering up the company’s balance sheet. He did not name a value that would be acceptable for the company, but said it should be “a hell of a lot more than the price on the table.”
Analysts and investment bankers on the deal said Potash may want to trumpet potential talks with rival bidders in hopes of coaxing a higher bid from BHP.
“It’s clear that they are in auction mode and that’s what you have to do. If you only have one bid, you don’t have much -- they have a fiduciary obligation to their shareholders to get the best value,” said BCMI Research analyst Chris Damas.
For its part, BHP Billiton sees Potash Corp as one of the few takeover targets that would make a difference to its long-term growth.
If BHP is going to raise its bid, analysts do not expect it to happen until after it declares its fiscal 2010 results on Wednesday. The company is also expected to get the regulatory approval process well under way before it considers making a higher bid.
BHP typically holds investor meetings after its annual and interim results. The Potash Corp bid is expected to dominate the agenda this time.
A recent Reuters poll of Potash Corp investors indicated that BHP could succeed in its bid if it sweetens its offer by one-fourth to $162 a share. [ID:nLDE67J0PV] The current $130-a-share offer expires Oct. 19.
Potash shares have risen to more than $150 in New York and almost C$160 ($152.38) in Toronto since BHP’s bid was made public last Tuesday.
CHINESE TO THE RESCUE?
“Discussions are being pursued with several of these third parties in order to generate value-enhancing alternatives,” Potash Corp said in a statement on Monday.
One of those parties was Sinochem, China’s top fertilizer firm, biggest chemical trader and No. 4 oil company [ID:nN23172820], a source said.
Sinochem’s Chinese connection is significant, as an expected surge in fertilizer demand from China, India and other emerging economies is what is fueling interest in Potash Corp. In the coming years, rising food consumption is expected to force farmers to use more fertilizer to maximize yields.
Chinese companies have increasingly sought to buy resource assets in Canada and elsewhere to secure crucial supplies. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For stories on the bid for Potash, click: [ID:nN22340110] Columns on BHP Billiton [ID:nLDE67J0F5] [ID:nLDE67M0CA] BHP -Potash deal calculator r.reuters.com/ruv65n ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
“One wants to explore all the options -- and you can’t do that by telekinesis,” said the source, who asked not to be named. The source was not authorized to speak about the matter.
A Sinochem official did not have any knowledge of any contact with Potash Corp.
“The Canadian government would not likely allow a takeover by a Chinese-controlled company, but Sinochem could seek to acquire a minority stake in Potash in an attempt to block a takeover from BHP,” said Dahlman Rose analyst Anthony Rizzuto, in a note to clients.
Sinochem already has ties to Potash Corp as top Chinese fertilizer company Sinofert is 22 percent owned by Potash Corp.
When asked about the impact of the possible purchase of Potash, Li Qiang, head of the Sinochem’s president’s office, told Reuters: “It will definitely have impact on China’s potash market, (and) we are closely watching the issue, and will cautiously evaluate the next development.”
“We think it’s credible that Sinochem (is) interested, but view them as a relatively minor threat to BHP as they won’t be able to go for the whole thing,” said analyst Michael Rawlinson at Liberum Capital in London.
While a Chinese company may be interested in taking a minority stake in Potash Corp, Rawlinson said, the Canadian company’s board would be wary of such a scenario. “A minority stake at a premium will require some very big ... concessions which may impinge long-term value,” he said.
A second source confirmed that Potash Corp was considering joint ventures with third parties as an option.
OTHER POSSIBLE BIDDERS
Media reports also mentioned the Brazilian mining giant Vale and Chinese private equity fund Hopu Investment Management as being interested in a possible bid.
But Vale said it is not preparing a bid for Potash Corp, confirming what sources had told Reuters earlier in the day. [ID:nRIA002062]
Two sources with direct knowledge of the matter said Hopu did not have any immediate plans to pursue a bid for Potash.
China Investment Corp, the $300 billion sovereign wealth fund, is the only Chinese investor with the kind of money and investment record that could counter the BHP bid, they added.
Officials at Hopu and Vale that were contacted by Reuters declined comment.
Potash shares in New York closed up 0.4 percent at $150.20 on Monday, while its shares in Toronto rose 0.7 percent to C$158.17.
BHP’s shares in London gained 9 pence, or 0.5 percent, to close at 1830 pence.