BHP Billiton has turned hostile with the $40bn (£26bn) cash offer rejected by the Canadian fertiliser giant Potash Corporation as "highly opportunistic" and "grossly inadequate".
Marius Kloppers, the BHP chief executive, took his offer directly to PotashCorp's shareholders yesterday and reiterated the claim that the $130-per-share bid was an "attractive offer", stressing that it is fully funded, will be paid in cash and represents a 20 per cent premium to PotashCorp's closing price the day before it was made.
But Saskatchewan-based PotashCorp maintains that the price does not recognise the massive growth potential in the fertiliser market as infrastructure-building in the developing world and rising populations put increasing pressure on agricultural production. The company also points out that its shares were at $240 less than two years ago.
PotashCorp stock has soared far above the bid price since BHP's approach, breaching $147 yesterday. But Mr Kloppers said all data on the fundamentals of the business were priced in after the company's recent results, and dismissed the surge as speculation of a raised offer.
BHP has given no indication of whether – or how far – it is willing to raise its price, repeating only that the offer was the result of a "bottom up" valuation of the business. The next step will be advertisements in the Canadian press offering to buy shares at $130, expected to run tomorrow.
Mr Kloppers refused to be drawn on the reaction from PotashCorp shareholders so far, or even if talks had taken place. "The most important thing for me is to make sure we satisfy the conditions of the regulatory authorities in Canada," he said. "That will be the focus over the next days and weeks."
PotashCorp has set up a "poison pill" which triggers a discounted one-for-one rights issue as soon as anyone acquires more than 20 per cent of its share capital. But such schemes are a standard part of defending against a hostile bid in Canada, and it is unlikely to affect the outcome of any deal. Either way, BHP is unlikely to be deterred. Not only does the $40bn price tag catapult the deal to the top of this year's takeover league. The acquisition also fits in with BHP plans to become a world-leading potash miner. And although the company might claim it could build up its existing potash business, there are huge benefits to buying in the technology and expertise from the market leader.
But predictions on price vary enormously – from as little as $150 to as much as $200. Now that the bid is hostile, the final price will be lower, says Charles Kernot at Evolution Securities. "Because PotashCorp won't open its books it is more of a risk, so BHP is unlikely to go above $160," he said.
Mr Kloppers himself has a lot riding on the deal. His last attempt at a massive takeover – a $147bn hostile bid for Rio Tinto – foundered in late 2008. And although its collapse can be justifiably blamed on the financial crisis, the failure of a second ambitious venture would still severely damage his credibility. "Marius Kloppers has to make sure this is a success," Mr Kernot said. "So it will happen – it's just a question of price."