PotashCorp pins hopes on white knight offer

  • @AlistairDawber

Potash Corporation of Saskatchewan reasserted its opposition to BHP Billiton's $38.5bn (£25bn) takeover bid yesterday, insisting that other companies are waiting to make a counter offer.

The group's chief executive, Bill Doyle, said that "all sorts of different players" have contacted PotashCorp, a week after the company rejected BHP's $130-a-share offer.

He accused the world's biggest mining company of trying to "steal" the Toronto-based fertiliser business.

He added that BHP's bid has "no traction whatsoever", and that "it's a dangerous game when you think you are the only player in town".

Mr Doyle is expected to make about $445m from the deal, thanks to a number of options.

Despite Mr Doyle's comments, a spokesman declined to say which companies had entered discussions.

The huge Chinese state-owned chemicals company, Sinochem, said last week that it would pay "close attention" to developments, amid BHP's now hostile approach.

A spokesman for the Chinese group, Li Qiang, said last Friday that Sinochem was "interested in overseas potash investment opportunities" and already had a close relationship with the Canadian business.

The Brazilian mining giant, Vale, is also understood to have expressed interest in PotashCorp, and would be keen to prevent BHP, a rival, getting a foothold of as much as 20 per cent in the lucrative potash market.

PotashCorp says it is confident that it can remain as an independent company, but with its shares now trading above $150, significantly above BHP's bid level, the market clearly believes that the company is in play.

Relations between PotashCorp and the Anglo-Australian BHP are already strained, as the mining group starts its charm offensive with the Canadian group's shareholders. Bankers from Goldman Sachs, RBC Capital Markets and Bank of America have been in meetings trying to find a white knight to launch a counterbid. "Discussions are being pursued with several of these third parties in order to generate value-enhancing alternatives," PotashCorp said yesterday.

A takeover by BHP Billiton remains the most likely outcome, however, even if the group is eventually forced to increase its bid.

"BHP's $130 per share bid highlights the desirability of potash assets, but surprised us with a paltry 16 per cent premium," said PJ Juvekar at Citigroup. "Given the easier takeover laws in Canada, we think BHP can buy PotashCorp, but it will have to be at a much higher price, in our view. We are raising our target price to $170."

Other industry experts suggest that BHP could lift its offer to as high as $60bn, with the takeover still being earnings accretive to the company.

At present, the offer is worth about 20 per cent of the company's overall value, meaning that BHP would not be required to ask its shareholders for permission to press ahead.

Analysts reckon the miner could go as high as $154-a-share before the proposed takeover became a so-called class-one deal, worth a quarter of its overall turnover, which would require shareholder backing. BHP already has financing for the deal in place.

BHP has so far refused to comment on speculation that it may be prepared to increase its bid, despite the increase in the value of PotashCorp's shares since its offer.