BEIJING/SINGAPORE (Reuters) - China's Sinochem will not bid for Canadian fertilizer giant Potash Corp POT.TO, sources told Reuters on Friday, removing one of the biggest potential hurdles to BHP Billiton's BLT.L $39 billion offer and nudging Potash Corp stock down 1.5 percent.
The Chinese state-owned chemicals group, which last month appointed Deutsche Bank DBKGn.DE and Citigroup C.N to help with a possible consortium to bid against BHP's hostile offer, had decided not to proceed, three sources with knowledge of the matter said. "It's finished," one of the sources said.
Another source said the idea of Sinochem forming a group for a counterbid, potentially involving sovereign wealth funds and industry players, had faltered weeks ago.
“I’d be surprised if the Chinese formalized their withdrawal, but there’s no ... way they are doing anything. It’s been dead for five to six weeks,” one source said.
The sources declined to be identified because they were not authorized to talk to media.
Sinochem’s decision not to join what remains a one-horse race removes a potential obstacle to BHP’s ambitions to buy the world’s largest fertilizer maker, although BHP must still convince Potash shareholders and Canadian regulators and politicians to back its offer.
Potash, the world’s top fertilizer maker, has flatly rejected BHP’s $130 per share offer and has repeatedly said it expects other offers. Potash shares are remain the offer price, suggesting that investors expect a sweetened bid.
Shares of Potash Corp were down 1.5 percent at $144.95 by mid afternoon on the New York Stock Exchange.
“If Sinochem does withdraw, it makes it harder for Potash Corp to justify to shareholders that the company is worth more and that shareholders should not support the BHP proposal,” said Darryl Levitt with law firm Macleod Dixon in Toronto.
“I wouldn’t completely rule out the possibility of any other late-stage bids, given the strategic nature of the asset, however this development appears to be maneuvering BHP closer to the finish line,” he added.
BHP's Australian-listed shares closed one cent lower at A$41.65 on Friday. BHP is under pressure to complete a deal, as its $116 billion proposed iron ore joint venture with Rio Tinto RIO.LRIO.AX suffered a new blow on Thursday after Germany said it would ban the planned merger.
China’s main worry is that a BHP takeover of Potash could push up the price of potash, a nutrient essential for boosting grain production to meet booming food needs. Sources said Sinochem would not bid without a positive signal from the Canadian government which was worried about Chinese ownership.
“The answer probably would have been ‘no’ as they (Canada) don’t like the idea of a supplier also being a customer. That would have been the big sticking point,” said Peter Chilton, an analyst at Constellation Capital Management which owns BHP shares.
“At this point in time no-one else has come out of the woodwork to bid (against BHP). Without the Chinese there is not a lot left I can think of.”
Officials in Potash Corp’s home province of Saskatchewan, which gets billions of dollars in royalty revenue from Potash Corp, fear the Chinese would hold down potash prices.
British newspapers said this week that Potash was considering defensive moves, perhaps including a break-up. They said Canada's Ontario Teachers Pension Plan had talked to Singapore investment fund Temasek TEM.UL about launching an offer with Canada's Teck Resources TCKb.TO.
However, analysts played down the likelihood of those efforts succeeding.
Temasek, Potash Corp, Deutsche and Citi all declined comment. Sinochem spokesman Li Qiang declined to comment on whether it had withdrawn, but said Sinochem it was watching developments.
Sinochem has never publicly said it will bid for Potash.
Canadian Industry Minister Tony Clement said the government was still reviewing the BHP proposal.
“We have a role to look at these bids from the point of view of Canadian jobs, Canadian opportunity, Canadian innovation - these kinds of issues... Obviously we are taking this review seriously, this is not a pro-forma kind of review process,” Clement said on the sidelines of an insurance industry event in Toronto.
Clement said Canadian regulators have talked with BHP officials about their offer, but denied the Canada was involved in Sinochem backing away from a possible bid of its own.
“I have never talked to them (and) they’ve never talked to me,” said Clement. “So that’s based on their decision, not anything the government of Canada has decided.”
Last week, a source familiar with the situation told Reuters that Sinochem wouldn’t bid for Potash Corp unless the Canadian government gave a positive signal that the bid would receive a fair review from regulators.
Reporting by Beijing bureau, Joseph Chaney, Saeed Azhar, Euan Rocha, Julie Gordon and Michael Smith; Editing by Lincoln Feast and Janet Guttsman
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