BHP promises not to overpay for Canada's PotashCorp

Marius Kloppers refused to rule out a higher bid for PotashCorp of Saskatchewan yesterday, but warned that BHP Billiton would not overpay for the world's biggest fertiliser maker.

Outlining details of the miner's strategy to take control of PotashCorp after details of the approach were made public last week, the BHP chief executive reiterated that its $130-a-share cash bid remains the only offer for the Canadian company.

After unveiling a 10 per cent increase in earnings to $24.5bn last year, Mr Kloppers said that he intends to spend the next month meeting shareholders to gauge reaction to the $38.5bn approach. "I will be as disciplined on this bid as I've been on every other endeavour," he said. "The shareholders own the company and it's my job to create more value for them, not to do any one thing at any cost."

The market believes that BHP will have to lift its offer. The $130-a-share approach is 20 per cent higher than the level of PotashCorp's share price immediately before the bid. PotashCorp shares are now trading at about $150, as the company's chief executive, Bill Doyle, and its bankers try to drum up interest from other potential buyers.

Mr Kloppers pointed out that, despite rumours of a rival bid – the Chinese chemicals group Sinochem, the Brazilian mining giant Vale and rival Rio Tinto are the most likely suitors – no alternative has yet been presented.

"I have only seen one bid, our bid. An interloper may emerge, but we are the only game in town at this stage," he said. "It is an all-cash bid with as few pre-conditions as possible and our focus is on completing a great deal for shareholders, ours and theirs."

Despite Mr Kloppers' comments, analysts still expect a higher offer. "Although we would have preferred [BHP] Billiton to have redeployed its cash flow on bolt-on acquisitions and share buybacks, the comments in the statement highlighting the group's intention to maintain financial discipline are encouraging," said Jonathan Jackson, of Killik & Co. "However, given the current PotashCorp share price ($149) and press comments that others (Rio, Vale, Sinochem, etc) are evaluating a bid, we are concerned the group will have to increase its offer to succeed."

BHP executives' conversations with shareholders will be dominated by the PotashCorp bid. Mr Kloppers said that he has not yet had time to speak to investors, but dismissed the idea that the money could been better spent on share buybacks, or on a larger dividend

About 50 per cent of BHP's backers in North America also have stakes in PotashCorp, giving the mining group the opportunity to laud the merits of the $130 offer. To date, however, several PotashCorp backers have gone public in calling for a higher price.

BHP's case was strengthened after its results yesterday showed a 47 per cent increase in second-half profits. The dividend increased to 87 cents, up from 82 cents a year ago.

Characteristically cautious, Mr Kloppers warned that short-term demand could weaken as stimulus packages that have supported several countries' economies are wound down. But he added that there is also a shortage of supply – a result of other mining groups reducing capital spending.

"Underlying cashflow for the year remains strong, the $17.9bn is a serious amount of cash and I guess that was flagged by Marius in the sense it underpinned their capacity to execute the PotashCorp deal," Stephen Bartrop of Limestreet Capital said. "It is a bit of a cautious outlook which says there are some good areas and concerns elsewhere."

BHP's UK-listed shares closed down 36p yesterday, at 1,767p.

Insider dealing charges

Santander, the Spanish bank advising BHP Billiton on its bid for Potash, has suspended an analyst charged in the US with insider trading.

Juan Garcia, head of derivatives research, was charged by the Wall Street watchdog, the Securities and Exchange Commission, with insider trading in Potash options before the news of the BHP bid. He and a friend, Luis Sanchez, made nearly $1.1m (£713,000) in illegal profits through US brokerage accounts, according to the SEC lawsuit. The regulator froze the pair's accounts by secret court order last Friday and unveiled the charges late on Tuesday.

Santander said it had followed correct procedures. "We are awaiting the results of both our internal and the supervisors' investigations, with whom the bank will co-operate. While the investigation is completed, the employee concerned has been suspended from his job." Mssrs Garcia and Sanchez jointly spent about $61,000 buying call options between 12 and 16 August, the SEC alleged, selling them all on 17 August, the day BHP's bid was announced.

Stephen Foley

Miners and mergers

1860

Founded in The Hague, Billiton is granted tin and lead concessions in the Dutch East Indies. It was bought by Shell in 1970, and sold to South Africa's Gencor in 1994. It was divested in 1997 and listed on the FTSE 100.

1885

Broken Hill Proprietary, later renamed BHP, is founded as a lead and zinc miner in New South Wales.

March 2001

Bhp and Billiton merge, creating BHP Billiton.

2005

BHP Buys WMC Resources, a mining and fertiliser company, for $7bn. The deal gives BHP the Olympic Dam asset in South Australia, a huge gold, copper and uranium mine.

2007

BHP launches a $135bn bid for rival Rio Tinto. The rejected bid would later collapse in the mire of the financial crisis, Rio's debts and regulatory hurdles.

2009

BHP and Rio Tinto announce plans for an iron ore joint venture in the Pilbara region of Western Australia. Both groups believe the deal will save $10bn, but a year on, they are still working to overcome regulators' concerns.

January 2010

BHP buys Athabasca Potash, a Canadian potash group, for $320m.

August 2010

BHP launches its $38.5bn bid for PotashCorp of Saskatchewan, which is rejected by PotashCorp's board, which describes the $130 a share offer as "grossly inadequate".

Ben Swift

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