September 2, 2009 / 6:59 PM / 9 years ago

M&A hopes spur bullish options trade in potash cos

CHICAGO/TORONTO (Reuters) - A number of investors in options took bullish positions on North American potash producers on Wednesday, in the wake of renewed speculation around takeover activity in the potash industry.

Call option trades in Mosaic Co (MOS.N) surged on Tuesday, while option volume in Intrepid Potash (IPI.N) on Wednesday was six times the normal daily turnover and heavily biased on the call side in afternoon trade, according to option analytics firm Trade Alert.

Investors often use equity call options — allowing them to buy the company’s shares at a fixed price within a specified time period — to speculate on potential share gains.

“Investors are looking at the potential for consolidation in the industry,” said Andrew Wilkinson, senior market analyst at Interactive Brokers Group, referring to the heavy Mosaic option activity.

The potash industry has for months been rife with speculation that Mosaic, Intrepid, or Potash Corp POT.TO might be takeover targets for mining giants like BHP Billiton (BHP.AX) BLT.L, or Vale VALE5.SA (VALE.N).

Takeover hopes also boosted shares of the fertilizer producers, sending shares of Intrepid up 5.2 percent on the New York Stock Exchange, while those of Mosaic rose 2.9 percent.

Potash Corp’s shares were up 3 percent in midday trade at C$99.40 on the Toronto Stock Exchange.

But analysts remain skeptical about the likelihood of a takeover in the sector.

Chief options strategist Chris Jacobson of Susquehanna Financial Group notes that similar option trading patterns in the potash sector did emerge earlier this year, when reports suggested that Brazil’s Vale was mulling a $56 per share bid for Mosaic.

At the time, Vale denied the rumor and said it planned to continue developing its existing fertilizer projects including ones in Argentina, Mozambique and Canada, and that it did not see a need to acquire other operations.

Mosaic, which is majority owned by Cargill, said it does not comment on market speculation. Spokespeople for Intrepid Potash and Potash Corp were not immediately available for comment.

BHP has said it plans to develop the Jansen potash mine in Saskatchewan, but it has remained coy about whether it would consider an acquisition in the potash sector.

“Obviously, there are not that many companies when you talk in the potash space and by me commenting on this I would implicitly be commenting about one or two specific opportunities which you will understand we cannot do,” said BHP’s Chief Executive Marius Kloppers, in a recent analyst briefing.

With additional reporting by Sonali Paul in Sydney; Editing by Jeffrey Hodgson

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