TORONTO: News that China's Sinochem will not launch a counterbid for Potash Corp, removes one of the biggest potential obstacles to BHP Billiton's $39 billion offer for the Canadian fertilizer giant.
The fate of Potash Corp is far from certain, however, as other white knights may emerge, and BHP faces regulatory hurdles on the one hand and demands from Potash Corp for a higher bid on the other.
Shares in Potash Corp slipped 1.2 per cent in New York at midday on Friday to $145.37, but remained well above BHP's $130 per share bid, suggesting investors are still confident of a higher offer. BHP, the world's largest miner with a tradition of discipline when it comes to takeovers, may even walk away.
Following are some of the scenarios facing Potash:
HOSTILE SHOWDOWN Probability: Most likely With Sinochem out of the picture this is the most likely scenario because it makes it more difficult for Potash to convince shareholders there are other bidders and that it is worth more. Potash shareholders had indicated they would need BHP to raise its $130 per share bid to $162 before accepting an offer, according to a recent Reuters poll.
If BHP sweetens its bid, but still can't win over Potash's board, it may again take its higher bid directly to shareholders. BHP also might persist with its hostile offer and hope Potash shareholders will be convinced of the bid's merits. For now, Potash is sticking with its "just say no" defense.
A NEGOTIATED DEAL Probability: Likely This outcome is only possible if BHP is willing to substantially raise its bid for Potash. Some analysts argue that it would take an offer of at least $150 a share, while others say Potash's net asset value alone is in the region of $160 to $170 a share. Potash shares touched a high of $240 in 2008. Some analysts say a deal above $165 a share would hurt earnings, but that those levels are unlikely.
BHP's bid faces the additional obstacle of needing formal approval by its own shareholders if it sweetens its offer to a point where the value of the bid exceeds 25 per cent of its own market capitalization.
POTASH FORMS A JOINT VENTURE Probability:
Possible Potash could foil BHP's takeover attempt by selling a portion of its assets into a joint venture at a price that implies a substantially higher value for the whole company than BHP's current bid. Sinochem, China's top fertilizer maker and its No. 4 oil company, could be a viable joint-venture partner, especially now that it has abandoned plans for a counterbid for the whole company.
A Chinese company would ideally seek a supply agreement deal with Potash in the event of a joint venture. However, any agreement on this would have to be structured around Canpotex -- the international marketing arm of potash producers Potash Corp, Mosaic Co and Agrium Inc.
Analysts have also speculated that a consortium of companies could consider the joint-venture model if they were unable to secure enough capital for an all-out bid.
http://www.smh.com.au/business/potash-there-for-bhps-taking-20101019-16sin.html
THE chief executive of BHP Billiton, Marius Kloppers, can clinch control of Potash Corp and put the two misses he has had in game-changing deals with Rio Tinto behind him. But according to analysts, control of the feisty Canadian company will only come if BHP's $40 billion offer is increased substantially.
The Canadian Imperial Bank of Commerce said in a report that since no white knight had arrived with a counter-bid to BHP's one of $130 a share, Mr Kloppers could bank on ultimately being successful, as long as the offer price is closer to $150 a share. It said fundamentals in the crop nutrient markets were improving and that $150 a share could be the ''magic number''.
The bank said it did not expect BHP would receive the necessary shareholder acceptance from Potash shareholders at $130 a share by November 18, the current bid expiry date.
'At $150 a share, there is probably enough of a premium for Potash shareholders to capitulate while still being below the the threshold at which BHP would be required to take this deal in front of its own shareholders (triggered at about $157 a share),'' the bank said.On the improved outlook for crop nutrients, Morgan Stanley said in a report that inventories for Potash's namesake main product were getting tighter. Inventories are currently 55 per cent lower year-on-year and 17 per cent below the five-year average.
Prices for potash have started to move higher. Potash Corp recently secured a $50 a tonne increase for potash which was followed by the $25 a tonne increase posted by fellow producer Mosaic in the US market. Morgan Stanley said global fertiliser application rates were well below recommended levels. Application rates have been fairly constant over the past 10 years but the bigger crops have been removing more nutrients from soil, it said.
Despite the stronger outlook for crop nutrients and calls for BHP to increase its bid to at least $150 a share, Potash shares have weakened. They fell to $143.21 on Monday.
Mr Kloppers has said he would not acquire Potash simply for the sake of completing a deal.
"I hope my shareholders consider that my job is on the line if we do an acquisition purely for the sake of doing an acquisition," he said in August when the bid was announced. "I will be as disciplined on this bid as I've been on every other endeavour that we've been on."
Pressure is building on Mr Kloppers to seal the deal after a proposed $116 billion iron ore production joint venture with Rio Tinto in the Pilbara was cancelled this week. It would have saved the companies a collective $10 billion - the biggest near-term prize either had on the go. It was killed off when it became clear anti-trust regulators around the world would withhold approval.
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