BHP goes hostile on $39 billion Potash Corp bid
TORONTO/LONDON (Reuters) - BHP Billiton will pitch its $39 billion (24.96 billion pound) offer to buy Potash Corp directly to shareholders of the No.1 fertilizer supplier after arranging a massive bank loan that could help it sweeten its now-hostile bid.
BHP Billiton, already the No. 1 global miner, said on Wednesday it would bypass the board and extend its $130-a-share offer to the Canadian company's shareholders, many of whom remain underwhelmed by the price.
Investors signalled their belief that the offer would go higher by pushing Potash Corp shares up by nearly a third in two days, leaving the stock 13 percent above the bid price.
Potash Corp's directors have rejected the offer and put a poison pill in place to fend off BHP. Even so, the company has left the door open to a higher bid.
"I would say it would have to get to the $160 to $180 range for there to be a potential for a deal," said Paul Taylor, chief investment officer at BMO Harris Investment Management Inc, which owns Potash Corp shares.
"A fair deal is not at $130 a share," he added.
With its takeover offer -- the largest in any industry this year -- BHP aims to vault to the top of a rebounding fertilizer industry, which suffered during the global economic crisis.
The nutrient, critical for boosting crop yields, commanded more than $1,000 a tonne during the commodity boom of 2007-08. It has since fallen to about $350 to $375 a tonne levels.
Still, potash demand is expected to climb steadily as incomes rise in China, India and other emerging economies, and their population growth accelerates. That will put pressure on farmers to grow higher quality food and increase crop yields.
"Potash ... is an irreplaceable element in enabling increased global agricultural production," Marius Kloppers, BHP Billiton's chief executive, said on a conference call.
BHP's desire to become the industry leader, as well as a muted reaction by shareholders to its initial offer, could lead to a sweetened bid, investors and analysts say.
"Everyone's saying they'll have to pay more," said Tom Elliott, managing director of MM&E Capital based in Melbourne, a hedge fund that takes positions in M&A situations.
Bankers told Reuters six banks have agreed to underwrite a syndicated loan of $45 billion to BHP, adding to the company's estimated $11 billion in cash warchest. The funds could help the Australian company raise the ante.
The deal fits into BHP's strategy of building output in low-cost, exportable commodities, particularly those needed in China, its biggest market.
Still, the move for Potash Corp surprised some, as BHP had been expected to focus on its own potash assets, including the planned Jansen mine in the Canadian province of Saskatchewan, which produces about a third of the world's supply and has huge reserves.
A deal would immediately give BHP a 20 percent share of the global potash market. Otherwise, it would not become a major producer until its flagship Canadian deposit hit full capacity in 2021.
The deal "further diversifies our footprint by customer, by geography and by commodity," Kloppers said. "We are driven by a belief that potash mining has good long-term industry fundamentals."
Kloppers is not alone in that view. The sector has attracted heated takeover interest, with BHP's move for Potash Corp following a similar consolidation play in Russia that could result in the formation of a new global No. 2.
BHP said it expected the deal to add to earnings in the second full fiscal year after completion and had arranged financing. It put total funds required for the deal at $43 billion, including options and pension obligations.
But at least one London fund manager -- a top-20 shareholder in both BHP and Potash -- was disappointed with the bid, noting Potash shares were still well short of their 2008 all-time high above $241.
"We expect much more. In terms of share price we expect $170 a share," the fund manager said. "For BHP it is a great deal too, it has a lot of cash and can increase shareholder value."
Potash Corp CEO Bill Doyle has left the door ajar, saying it might consider a more lucrative offer.
NOT LIKELY TO OVERPAY
But BHP may not be willing to go too much higher. Kloppers has a reputation for fiscal prudence, after walking away from a year-long campaign to take over Rio Tinto.
In addition, BHP was unlikely to face any rival bidders, so the Potash Corp board may find it difficult to push BHP too hard, bankers, analysts and investors said.
Rio Tinto and Brazil's Vale - a pair of global mining giants that are obvious candidates - are unlikely to take on BHP in a bidding war, they said..
"Rio won't have the muscle to outbid Billiton, but financially they are in a much stronger place than they were a year ago. I think it would be a very high-risk strategy when the wounds haven't healed completely on the Alcan deal," said analyst Peter Davey at Ambrian investment bank in London.
Rio has only recently sold off potash assets in Argentina and Canada to help pay down a mountain of debt it took on for its ill-timed takeover of aluminium producer Alcan.
In Vale's case, the Brazilian-based company would more likely wait and pick up any potash assets BHP might be forced to spin off after taking over Potash, one analyst said.
BHP is being advised by JPMorgan, TD Securities, Banco Santander, Barclays Capital, BNP Paribas and Royal Bank of Scotland.
Potash Corp is being advised by BofA Merrill Lynch, Goldman Sachs and RBC Capital Markets. The deal could yield potential fees of $170-$190 million to advisers, according to Thomson Reuters data.
Potash Corp shares in New York had gained 3.1 percent to $147.58 on Wednesday afternoon in New York, after soaring a record 28 percent on Tuesday.
BHP London shares shed 3.4 percent to 1870.51 pence, after its Australian shares closed down 4.4 percent.
(Additional reporting by Scott Haggett in Calgary, Jennifer Kwan in Toronto, Sonali Paul in Melbourne Julie Crust and Cecilia Valente in London, Michael Erman in New York, Nick Trevethan in Singapore, Sharon Klyne in Sydney, Umesh Desai in Hong Kong, Chikafumi Hodo in Japan; Editing by Simon Jessop and Frank McGurty)
- Tweet this
- Share this
- Digg this