The Rising Influence of Rising Affluence

[DewDiligence]

POT Rejects $39B BHP Buyout, Shares Up 25%

http://online.wsj.com/article/SB10001424052748704554104575434992386821512.html

›AUGUST 17, 2010, 12:14 P.M. ET
By CAROLINE VAN HASSELT And BEN DUMMETT

TORONTO—Potash Corp. of Saskatchewan Inc. on Tuesday rejected an unsolicited takeover bid from BHP Billiton Ltd. of Australia, calling the $38.56 billion offer "grossly inadequate."

Potash, based in Canada, quickly adopted a poison-pill defense to fend off its would-be suitor, though it said it remained open to a transaction at the right price.

Bill Doyle, Potash's chief executive, said during a conference call that the board "is not opposed to a sale but opposed to a steal."

Analysts said they expect BHP Billiton to return with a higher offer amid speculation that other mining groups, such as Rio Tinto or Vale, may be considering a bid for Potash. [I would be surprised if VALE were *not* in the game.]

The BHP offer is the latest in a slew of takeover activity in the agribusiness sector driven by a recovery in demand after the collapse of the commodity sector two years ago following a boom.

Mining groups have diversified into potash to leverage production synergies and access the long-term growth fundamentals of the agribusiness sector [duh].

BHP Billiton offered $130 a share, a 16% premium to Potash's Monday closing price. Potash shares were up 25%, or $27.64, at $139.79 on the New York Stock Exchange at midday Tuesday. The stock is up 30% this year but still 44% below its mid-2008 peak.

Mr. Doyle said BHP's bid was "grossly inadequate" and is an "ill-disguised" attempt to take advantage of low share prices.

Potash Chairman Dallas Howe said in a letter dated Aug. 13 that the board unanimously dismissed the offer, viewing it as highly opportunistic given that the industry is still in the early stages of a recovery.

The new shareholder-rights plan puts a 20% ceiling on stakeholders, but does allows for a "competing permitted bid" or a negotiated transaction. "The rights plan is a very prudent plan to protect our shareholders," Mr. Doyle said.

BHP said in a written statement that it continues to review its options and will make a further announcement in due course.

Its interest in Potash comes at a time when the fertilizer industry is trying to consolidate to take advantage of the growing global demand for wheat. Prices for the crop have surged this year as a result of a drought in Russia and heavy rains in Western Canada and China.

Agrium Inc., Canada's second-biggest fertilizer producer after Potash, made an unsolicited bid Monday for Australian wheat exporter AWB Ltd., topping an offer from rival Graincorp Ltd., as it seeks to make Australia a hub into Asia.

BHP's move drove up agribusiness stocks. Mosaic Co. was up 8.2% at $55.34, while Intrepid Potash Inc. was up 6.2% at $25.45. Agrium was up 5% at $69.16.

The fertilizer industry has continued to rebound from slumping demand last year. Last month, Potash said its second-quarter profit more than doubled and boosted its 2010 earnings guidance.

The board reiterated the company's belief that it is on the "verge of an inflection point" in which demand will return to historical growth patterns, supplies will tighten and prices will improve.

BHP already has potash operations, and bought Canadian exploration company Athabasca Potash for $320 million earlier this year [#msg-46103981].

"It would give them a fourth leg to their stool," said Dundee Securities analyst Richard Kelertas. "But, it's an opportunistic bid. They will have to pay up." He thinks BHP will "max out" its bid at $135-$140 a share.

BHP Chief Executive Marius Kloppers said in August 2009 that BHP intended to spend "billions of dollars" to develop its Jansen potash project near Potash Corp.'s mines in Saskatchewan.

"I do think the Jansen project has been a smokescreen, a charade so to speak," Mr. Doyle said Tuesday. "We clearly saw through it and we think our shareholders will see through it as well."

BHP's American depositary shares were down 2.1% at $70.43.‹