Bid for PotashCorp taken to investors
by Miranda Minassian
Australian-based global mining giant, BHP Billit made a cash offer directly to the shareholders of one of Saskatchewan’s premier fertilizer companies, PotashCorp, in what is being described as an “aggressive hostile take-over bid.”
Wednesday, BHP offered US$130 a share, touting the price as a 20 percent premium on the Aug. 11 closing price. The bid represents a 46 per cent discount of the record share price of US$239.50 in June of 2008.
This comes after PotashCorp unanimously rejected an unsolicited, US$130 per share cash proposal from BHP earlier in the week, which PotashCorp’s board of directors called “grossly inadequate.”
“The Board of Directors unanimously believes that the BHP proposal substantially undervalues PotashCorp and fails to reflect both the value of our premier position in a strategically vital industry and our unparalleled future growth prospects,” said the company’s chairman, Dallas Howe, about the original bid.
PotashCorp believes its stock is still undervalued, as the fertilizer industry has only begun to emerge from the economic downturn.
Late last week, the fertilizer giant asked shareholders to be patient, and not to act until the offer had been reviewed.
“Potash Corp’s board will make a recommendation to shareholders regarding the offer, but in the meantime, the board advises shareholders not to take any action regarding the offer,” the fertilizer producer said in a statement on Friday.
The latest move by BHP for control of the fertilizer company has led PotashCorp to adopt a Shareholders Rights Plan, or a poison pill—a defensive tactic commonly used by corporate board of directors to guard against takeovers.
The company said that the adopted plan is intended to stop anyone from building more than a 20 per cent stake in the company, ensuring it has sufficient time to review its options in the case of a formal takeover bid.
BHP has said it sees potash as a relatively low-cost business that offers significant growth opportunities.
The Autraliam company holds more than 7,338 square kilometres of exploration permits in Saskatchewan, with its Jansen Project expected to begin producing potash in 2015.
BHP has already purchased Anglo Potash Ltd., a joint venture in Canada for US$282 million in 2008, as well as Athabasca Potash Inc. earlier this year for about US$320 million.
This has extended its potential exploration acreage in Canada to over 14,000 kilometres.
According to BHP, if the acquisition goes through, they plan to maintain the current levels of employment at PotashCorp’s Saskatchewan operations for the foreseeable future.
Bill Boyd, the Minister of Energy and Resources, called BHP “a good corporate citizen” who already has a significant presence in Saskatchewan.
The provincial government is closely following the mining giant’s bid, which has prompted Premier Brad Wall to order an independent analysis of the impact the proposed takeover might have on the province.
“We make between $250 million to $1 billion in royalties from the potash industry. That is not to mention the billions in infrastructure investments around the province, the corporate taxes, property taxes, as well as the economic investments of the people the industry employs,” said Boyd.
“I think it has always been felt that potash, as a resource, itself is important to the province,” said Boyd. “It is important that it stay in Saskatchewan. We want to make sure that there are good quality jobs here.”
No matter what the outcome of this particular bid is, PotashCorp’s head office will stay in the province, according to legislation amended by the Saskatchewan government in the 1990s.
“Our government is trying to attract head offices with a positive business climate. That is why we are seeing companies like BHP coming to Saskatchewan,” said Boyd.
“People around the world recognize that Saskatchewan is a good place to do business.”
Should BHP’s acquisition of PotashCorp go through, it would consummate one of the biggest foreign takeover deals in Canadian history.
Now that BHP Billiton has opened the door, speculation about other potential bidders has grown, with suggestions that Vale, Rio Tinto Group and other groups in Russia and China could be interested.
Shares of PotashCorp rose for the fourth day in a row on Friday, reaching US$157.06, well above the Australian miner’s offer of US$130 per share.
With about 20 per cent of the world’s production capacity, PotashCorp is the globe’s leading producer of the potassium based fertilizer.
The US$40 billion offer will be open for acceptance until Oct. 12, 2010.