BHP Billiton hopes jump in profits will help PotashCorp bid

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The Independent Online

BHP Billiton is hoping that a huge jump in annual profits, set to be announced this morning, will be enough to frighten off any potential rivals for Potash Corporation of Saskatchewan, which last week rejected a $38.5bn (£24.9bn) bid from the mining giant.

BHP is expected to announce a profit surge of about 50 per cent this morning, to nearly $7bn, helped by recovering commodity prices in the last 12 months. BHP has already secured financing worth $45bn for the takeover, with analysts suggesting that the group could easily go as high as $60bn before the cost of the takeover began to weaken earnings.

BHP has declined to comment on whether it may be prepared to increase its offer. The bid represents a 20 per cent premium above PotashCorp's closing share price before news of the approach, but is 45 per cent below the group's all-time high share price.

Speculation about rival suitors has increased after PotashCorp, the world's biggest fertiliser company, accused BHP of trying to "steal" the company with the $130-a-share offer last week. Since then, bankers for the Canadian group have set about trying to find a white knight, suggesting that the Chinese state-owned chemicals company Sinochem could make an offer, or that Vale of Brazil, which would be eager to stop its rival BHP getting its hands on such a lucrative asset, could show its hand.

PotashCorp's shares are now trading at about $150, as the market anticipates a bigger offer.

Yesterday reports from Canada suggested that Rio Tinto, BHP's Anglo-Australian rival, could mount a counter-bid, possibly in conjunction with Chinese investors. A spokesman for Rio Tinto refused to comment.

Rio Tinto has an increasingly close relationship with China, its biggest client. Chinalco, the huge state-owned aluminium group, owns about 9 per cent of the company's shares and is its joint venture partner in the potentially highly valuable Simandou iron ore project in Guinea. Rio has also spent much of the last year trying to improve its relationship with Beijing after four employees were tried and jailed for accepting bribes earlier this year.

But analysts yesterday were sceptical about the prospect of a bid from Rio Tinto. The company has only just recovered from its top-of-the-market buyout of the Canadian aluminium producer Alcan three years ago, and with BHP is pushing regulators to approve an iron ore joint venture in the Pilbara region of Western Australia.

"I would be very surprised," said Adam Dixon, at the investment group Ausbil Dexia. "Rio has a very full pipeline of organic growth opportunities. Coupled with this, the company is still busily integrating the Alcan business that it bought not so long ago."

Industry analysts are hoping that this morning's results announcement will give more clues about BHP strategy, with chief executive Marius Kloppers expected to give an update on the situation.

So far the group has insisted that the $130-a-share bid is the only offer on the table and has stressed its mining expertise and its already heavy presence in the Canadian potash industry. Sources close to BHP said last week that it offered the best deal "for jobs, for the environment and for safety".

Shares in BHP slipped 1.5 per cent to 1,803p ahead of the results today.