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DealTalk: Canada ruling sets stage for Potash to go it alone

TORONTO/NEW YORK (Reuters) - Canada's decision to block BHP Billiton's BHP.AX hostile takeover of Potash Corp POT.N makes it almost certain the world's top fertilizer maker will move forward and thrive as a stand-alone company.

In fact, while the decision stunned many, most Potash Corp investors seem unperturbed, eyeing its long-term growth prospects.

Shares of world’s top fertilizer maker were down just 2.4 percent a day after Canadian Industry Minister Tony Clement ruled that a takeover of the company would not be a ‘net benefit’ to Canada -- a pre-condition under Canadian law.

That standard might be tough for rival bidders to meet.

“It would be hard for me to imagine advising another company to approach Potash,” said one banker who works in the industry.

“It would be interesting if you could find a Canadian player, but I don’t think we can think of anybody that wants to do that. I think (Potash Corp) stays independent for some period of time.”

Potash Corp has been searching for alternatives to the $39 billion BHP bid since August, but a rival bid did not emerge. Canada’s ruling on BHP’s $130-a-share offer now has made a rival proposal by a foreign entity almost unthinkable.

It was always clear that only a handful of companies across the world could even hope to rival the BHP offer.

Diversified miners like Rio Tinto RIO.LRIO.AX and Vale VALE5.SA quickly counted themselves out of the race and even China's state-owned chemical giant Sinochem was unable scrape a bid together, despite Chinese concerns around potash supplies.

Sinochem decided against a Potash Corp bid in October, according to sources familiar with the matter, reportedly aware it would be hard to win approval from the same Canadian authorities that blocked BHP’s bid.

A possible Russian bid, led by fertilizer company Phosagro and backed by the Russian government, could face even stricter scrutiny.

“If you block an Australian company I think it’s going to be hard for a Russian or Chinese or somebody coming from a more exotic country. It really kills all the potential suitors,” said Lionel Melka with hedge fund Bernheim Dreyfus in Paris.

TAKEOVER PROOF

An independent study commissioned by Potash Corp’s home province of Saskatchewan in September had warned officials against blocking BHP’s bid. The report argued that such a move would depress Potash Corp’s share price and create a “halo” effect around the company’s senior management team.

But few investors are worried by the aura of untouchability that the Canadian government’s ruling bestows on Potash Corp, or its Chief Executive Bill Doyle.

“I’m happy it’s a stand-alone company. That’s what I want,” said Barry Schwartz of Baskin Financial, which owns about 35,000 Potash Corp shares. “At the end of the day, we will be able to control the price of potash and supply to China -- shareholders will be the real winners here.

Surging grain prices, coupled with the growing demand from emerging economies, has already boosted investor confidence in the fertilizer sector. Analysts believe investors are better served if Potash Corp remains a publicly traded entity.

Shares of Potash Corp were down only $3.53 at $141.97 in midday trade on the New York Stock Exchange in the first trading day after the Canadian ruling. That is still well above both BHP’s $130-a-share offer price.

“We believe that Potash shares, in absence of a bid, would likely trade in the $140 to $143 range with significant upside potential over the next 12 months,” Credit Suisse analyst Elaine Yip wrote in a note to clients.

Yip said recent increases in the price of potash -- a key crop nutrient -- could push Potash Corp’s shares to $164, or higher through the course of 2011.

“I am looking forward to owning this company for the next five years and seeing it actually prove out much better returns for shareholders,” Ian Ainsworth of Mackenzie Financial, one of Potash Corp’s top shareholders, told Canada’s BNN television.

(Additional reporting by Pav Jordan in Toronto and Eric Onstad in London)

Editing by Janet Guttsman

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