Potash Corp said on Monday it has held talks with other possible suitors as it ratcheted up pressure on BHP Billiton to raise its $39 billion offer for the world's largest fertiliser producer. A source close to the matter said China's Sinochem was one of the parties that had discussions with the Canadian company.
As Potash Corp formerly rejected the $130-a-share bid launched last week by the Anglo-Australian mining giant, it said it expected an alternative bid to emerge. The Canadian company urged shareholders not to tender to the BHP offer, which may well turn out to be the biggest take-over in any industry this year.
"It's a dangerous game when you think you are the only player in town," said Potash Corp Chief Executive Bill Doyle, in reference to BHP Billiton's offer, which Potash Corp has dismissed as "grossly inadequate". Doyle, who stands to earn a half-billion dollars from a sale of Potash Corp, told Reuters "all sorts of different players" had approached his company and that BHP's offer had "no traction whatsoever" with shareholders.
Doyle declined to identify any of the parties. Sinochem's Chinese connection is significant as an expected surge in fertiliser demand from China, India and other emerging economies is what's fuelling interest in Potash Corp. In the coming years, rising food consumption is expected to force farmers to use more fertiliser to maximise yields.
A recent Reuters poll of Potash Corp investors indicated that BHP could succeed in its bid if it sweetens its offer by a quarter to $162 a share. The current $130-a-share offer expires October 19. Doyle, who has headed Potash Corp for more than a decade, declined to comment on what valuation could succeed, but he stressed that the company is worth "a hell of a lot more" than $130 a share.
Potash shares have risen to more than $151 in New York and almost C$160 ($152.38) in Toronto since BHP's bid was made public last Tuesday. "Potash Corp has been approached by, and has initiated contact with, a number of third parties who have expressed an interest in considering alternative transactions," the company said in a statement on Monday. "Discussions are being pursued with several of these third parties in order to generate value-enhancing alternatives."
One of those parties was Sinochem, China's top fertiliser firm, biggest chemical trader and No 4 oil company, a source said. "One wants to explore all the options - and you can't do that by telekinesis," said the source, who asked not to be named. The source was not authorised to speak about the matter.
A Sinochem official did not have any knowledge of any contact with Potash Corp. "The Canadian government would not likely allow a take-over by a Chinese controlled company, but Sinochem could seek to acquire a minority stake in Potash in an attempt to block a take-over from BHP," said Dahlman Rose analyst Anthony Rizzuto, in a note to clients.
Sinochem already has ties to Potash Corp as top Chinese fertiliser company Sinofert is 22 percent owned by Potash Corp. When asked about the impact about the possible purchase of Potash, Li Qiang, head of the Sinochem's president's office, told Reuters: "It will definitely have impact on China's potash market, (and) we are closely watching the issue, and will cautiously evaluate the next development."
While a Chinese company may be interested in taking a minority stake in Potash Corp, Rawlinson said the Canadian company's board would be wary of such a scenario. "A minority stake at a premium will require some very big off-take/JV concessions which may impinge long-term value," he said. A second source confirmed that Potash Corp was considering joint ventures with third parties as an option.
Media reports also mentioned Brazil's Vale and Chinese private equity fund Hopu Investment Management as being interested in a possible bid. Citing persons with knowledge of the matter, Bloomberg News said Vale had made inquiries with the board of Potash late last week, and the Wall Street Journal said a consortium led by Hopu was studying the feasibility of a bid.
But two sources close to Vale told Reuters that the Brazilian mining giant is not preparing a bid for Saskatoon, Saskatchewan-based Potash Corp. Two sources with direct knowledge of the matter said Hopu did not have any immediate plans to pursue a bid for Potash. Even with a consortium, Hopu would have limited money to add, having raised a $2.5 billion private equity fund in 2008 that it has been actively investing.
China Investment Corp, the $300 billion sovereign wealth fund, is the only Chinese investor with the kind of money and investment record that could counter the BHP bid, they added. "We think it's credible that Sinochem (is) interested, but view them as a relatively minor threat to BHPB as they won't be able to go for the whole thing," said analyst Michael Rawlinson at Liberum Capital in London.
Officials at Hopu and Vale that were contacted by Reuters declined comment. BHP Billiton sees Potash Corp as one of the few take-over targets that would make a difference to its long-term growth. If BHP is going to raise its bid, analysts do not expect it to happen until after it declares its fiscal 2010 results on Wednesday. The company is also expected to get the regulatory approval process well underway before it considers making a higher bid.
BHP typically holds investor meetings after its annual and interim results. The Potash Corp bid is expected to dominate the agenda this time. Potash shares in New York rose 1.3 percent $151.61 in early trade on Monday, while its shares in Toronto rose 1.6 percent to C$159.60.
BHP's shares in London gained 1.9 percent to 1855 pence by 1250 GMT, in line with the UK mining index as the sector rose after an inconclusive election in Australia boosted prospects of a proposed new mining tax being scrapped.
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