Sinochem set to gatecrash BHP's Potash takeover

  • @AlistairDawber

Sinochem fired the opening salvo in what could escalate into a full-scale takeover battle for Potash Corporation of Saskatchewan, as the Chinese chemicals group said it was watching BHP Billiton's $38.5bn (£25bn) hostile offer for the Canadian company.

PotashCorp, the world's biggest fertiliser producer, is eager to drum up support from BHP's rivals after it rejected the Anglo-Australian miner's $130-a-share bid as "grossly inadequate" on Monday. Several investors in PotashCorp see a counter-bid from China as the most likely to succeed in trumping BHP's offer, or forcing the company to increase its bid.

A spokesman for Sinochem, Li Qiang, was quoted as saying that the state-owned Chinese company would "pay close attention" to BHP's offer, which formally went hostile yesterday. Mr Li said Sinochem was "interested in overseas potash investment opportunities" and already had a close relationship with the Canadian business.

He stopped short of commenting on the likelihood of any formal bid. PotashCorp's share price is already well above the $130 offered by BHP. Earlier this week, Daniel Bubis, the chief investment officer of Tetrem Capital Management, a Winnipeg-based PotashCorp shareholder, said another bidder, possibly from China, might emerge and that BHP may need to go as high as $170 a share.

Of Chinese investors, Mr Bubis added: "This is obviously, longer-term, an extremely important commodity for them. Their diets are changing and there are a lot of mouths to feed, and that's not going to change."

BHP declined to comment on whether it was prepared to increase its bid, arguing that its initial proposal valued PotashCorp at 20 per cent more than the group's closing price at the end of last week. Next Wednesday, when BHP announces its 2010 results, the chief executive, Marius Kloppers, is expected to concentrate on BHP's mining expertise and its already heavy presence in the Canadian potash industry. Sources close to BHP said yesterday that it offered the best deal "for jobs, for the environment and for safety".

Analysts have suggested that BHP could afford to pay as much as $60bn for PotashCorp before a deal adversely affected earnings. 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. Earlier this week, it asked a syndicate of banks – Barclays Capital, BNP Paribas, JP Morgan, Royal Bank of Scotland and Santander – to arrange a $45bn loan. It is the biggest such facility since the similar-sized deal organised to support InBev's takeover of Anheuser Busch in 2008.

PotashCorp acknowledged BHP's offer yesterday but advised shareholders to take no action. The relationship between the two companies is already said to be fractious, with at least two months still to run on BHP's offer period.