Outlook That didn't take long. A day after BHP Billiton had its bid for Canada's Potash Corporation turned down, it went hostile, promising to pitch its $40m (£25m) offer for the company directly to shareholders.
What BHP didn't do, however, was come up with the "big boy price" that Potash said on Tuesday would be required. It has so far raised its $130-a-share offer by not a cent. And though the deal on the table as of now values Potash at a 16 per cent premium to its closing price on Monday evening, no one expects BHP to succeed without digging a little (or even a lot) deeper – certainly not the market, which pushed Potash shares to around the $150 mark yesterday.
The Canadian company's shareholders are in a strong position to ask for more. Just two years ago, when the global food crisis sent demand for Potash's fertiliser soaring, its shares were valued at $240. That reflected fertiliser prices of around $1,000 a tonne – these subsequently slipped back to below $300 in 2009, but have been climbing back towards $500 for much of this year.
And in the long term, every demographic indicator suggests that demand for Potash's products is only heading one way.
A premium valuation, then, is deserved, and any bidder for Potash has to decide whether it is willing and able to meet it. In BHP's case, the answer is certainly yes in the case of the latter and very probably for the former, too.
This, after all, is an industry that BHP has explicitly identified as a means of expanding beyond the minerals it traditionally extracts without moving away from the type of operation in which it has expertise. The investment case for potash and other types of fertiliser is strong, full stop. For a miner such as BHP, it is doubly so.
So much so that BHP has already spent several hundred million dollars – small change for it – on Potash assets that will give it a feel for the industry. But to accelerate its expansion into the sector, it needs a really sizeable acquisition.
And since long lead times mean developing new resources is not an option, the target has to be an established producer. Throw in BHP's limited activities in Canada to date and Potash appears to be a tailor-made solution.
There is one other small but significant issue that adds to the pressure on price. Canadians feel as proud of Potash as Britons did of Cadbury. That is not to say sentiment will stand in the way of regulatory clearance locally – though expect BHP to offer some gestures of reassurance – but it won't get away with any takeover seen as being on the cheap.
All in all, a "big boy price" is indeed what is required here. Expect Potash shareholders to hold out for one – and BHP to come up with the goods.