M&A - Europe

UPDATE 2-Potash Corp rejects BHP Billiton's $39 bln offer

* Says unsolicited offer “grossly inadequate”

* $130/shr offer at 16 pct premium to Potash close

* Potash Corp board adopts shareholder rights plan

* Sets trigger at 20 pct

* BHP shares down 1.4 pct on London Stock Exchange (Adds details)

Aug 17 (Reuters) - Potash Corp of Saskatchewan POT.TO said its board rejected BHP Billiton's BHP.AXBLT.L unsolicited $38.6 billion offer, terming it as "grossly inadequate," and adopted a shareholder rights plan.

In June, BHP Billiton said it sees potash as an ideal fit within its portfolio of commodity products and is focused on developing its potash projects in Western Canada into a world-class basin play. [ID:nN08269113]

BHP had made the offer on Aug. 13 to buy Potash Corp for $130 per share in cash, which represents a premium of 16 percent to its Monday closing of $112.15 on the New York Stock Exchange.

Potash Corp had 296.6 million shares outstanding as of Aug. 11.

Global mining giant BHP Billiton’s proposal to acquire Potash Corp substantially undervalues the company, Potash Corp Chairman Dallas Howe said in a statement.

It is not in the best interests of Potash Corp shareholders to enter into discussions with BHP Billiton, the world’s largest producer of potash said.

Potash Corp, which set the trigger at 20 percent under the rights plan, said the board authorized the issuance of one share purchase right in respect of each common share of Potash Corp outstanding as of the close of business on Aug. 16.

“We believe the timing of your proposal is highly opportunistic given that, among other things, the industry is still in the early stages of a recovery,” Howe said.

“Global demand for food is steadily increasing, creating an attractive operating environment for the entire fertilizer industry and, with our premier position, Potash Corp is uniquely poised to benefit,” Chief Executive Bill Doyle said.

BHP shares were trading down 1.4 percent on the London Stock Exchange at 1934 pence. Shares of Potash Corp closed at C$117.23 Monday on the Toronto Stock Exchange. (Reporting by Bhaswati Mukhopadhyay in Bangalore; Editing by Aradhana Aravindan)