Companies

Potash may look for a white knight to keep BHP at bay

By Michael Smith and Euan Rocha (China Daily)
Updated: 2010-08-21 11:19

A Potash Corp official holds a handful of chicklet potash at the Cory mine facilities near Saskatoon, Canada. [David Stobbe / Reuters]

SYDNEY/TORONTO - Potash Corp's search for buyers willing to top BHP Billiton's $39 billion hostile offer for the world's largest fertilizer firm could encourage Chinese companies to join the fray.

Potash is soliciting alternative bidders willing to pay more than the $130 a share offered by BHP, the world's largest mining company, one source close to the matter said.

The source said Potash Corp was confident alternative bids would emerge for the leader of a sector with huge growth potential.

Potash is a crucial ingredient in producing better crop yields, key to China, as its growing middle class increases the rate of food consumption. Shrinking amounts of arable land worldwide and China's own limited domestic supply of potash increase its importance in the world's most populous nation.

"The notion is that this is the Cadillac of the (fertilizer) business," the source said.

Potash Corp, based in the Canadian province of Saskatchewan, declined to comment. Top Chinese fertilizer company Sinofert "in which Potash owns a 22 percent stake" is the most logical candidate to lead a counter offer, industry sources say.

While Sinofert itself is small - its $3.8 billion market value is less than a 10th of Potash's - parent Sinochem Group is a huge State-owned group. Sinochem's revenues were $36 billion last year.

Aluminum giant Chalco, and chemicals company ChemChina, could also emerge as potential bidders, according to the sources. "I assure you there are numerous organizations in China who would chase potash (assets)," said an Asia-based investment banker who has advised Chinese resources companies on overseas deals but was unauthorized to speak publicly about the matter.

"China has very few potash reserves for itself, it's a commodity which they're going to be in short supply of. And does China want to be over the barrel on yet another commodity?"

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BHP's close rival, Rio Tinto, had also been touted as one potential, albeit unlikely, white knight for Potash. But Rio Chief Executive Tom Albanese declined comment on Friday on whether Rio would consider a rival bid. Both Rio and BHP were preoccupied on Friday in fending off speculation their $116 billion iron ore joint venture would not get regulatory approval.

China is the world's biggest potash buyer and its huge purchasing power gives it the ability to negotiate aggressively with suppliers. India is another big importer.

At $39 billion, BHP's offer is the highest in any industry this year. Reflecting anticipation of a sweeter bid, Potash's New York-listed shares have jumped, valuing the firm at $43.8 billion. The shares closed up 91 cents at $148.84 on Thursday. BHP shares fell 1 percent in Sydney in a weak broader market but edged up 1.4 percent in London.

Potash Chief Executive Bill Doyle, dubbed by the media as the "Fertilizer King" when potash prices spiked in 2007-2008, stands to make $500 million if Potash succumbs to BHP's offer.

BHP Chief Executive Marius Kloppers is betting an increasingly hungry world will pay dearly for potash. About 150 countries use potash for their crops, but it is only produced in about a dozen.

Reuters