The Rising Influence of Rising Affluence

[DewDiligence]

BHP Goes Hostile With $130/sh Offer for POT

[I did not know (until reading this article) that Canadian regulators have the authority to revoke a company’s poison-pill defense. This wrinkle could make BHP more likely to prevail than a typical hostile offer (such as the one by APD for ARG).]

http://online.wsj.com/article/SB10001424052748703649004575436701778489536.html

›AUGUST 18, 2010, 12:06 P.M. ET
By ROSS KELLY

SYDNEY—Anglo-Australian mining giant BHP Billiton said Wednesday it will take its $38.6 billion bid for Potash Corp. of Saskatchewan Inc. directly to shareholders after the fertilizer company's board rebuffed the miner's initial advances.

BHP's chief executive, Marius Kloppers, said the offer is fully priced, even though Potash's board described the bid as "grossly" inadequate.

"We've made a full offer for the Potash Corp. shareholders," Mr. Kloppers said during a conference call Wednesday. "We do believe that these assets fit extremely well with our assets."

Mr. Kloppers added that the all-cash offer provides "certainty" for Potash shareholders who are seeking a return on investment.

Mr. Kloppers approached Potash CEO Bill Doyle with a takeover proposal on Aug. 12 and was told the company wasn't for sale, the miner said in a written statement. A subsequent letter from BHP Chairman Jac Nasser reiterating the proposal to Potash's chairman was knocked back on Aug. 17.

Mr. Doyle said Tuesday the board wasn't opposed to a sale, "we just don't expect someone to come steal the company."

Potash adopted a shareholder-rights plan on Tuesday that puts a 20% ceiling on any single stakeholder. Such a so-called poison pill may be less effective in Canada than in the U.S. because a hostile bidder can lobby Canadian securities regulators to have the target company eliminate its plan and allow a tender offer to shareholders.

Mr. Doyle of Potash declined to say what might be a suitable offer. People close to the company, based in Saskatoon, Saskatchewan, said an offer would need to factor in Potash's record-high stock price of nearly $240 a share in mid-2008.

BHP said Wednesday its offer of $130 per Potash share is a 20% premium to the shares' closing price prior to its first approach on Aug. 12 and a 32% premium to their average price over 30 days before the approach.

"We firmly believe that Potash Corp. shareholders will find the certainty of a cash offer, at a premium of 32% to the 30-trading day period average, very attractive and we have therefore decided to make this offer directly to those shareholders," Mr. Nasser said in a written statement.

BHP said the proposed acquisition would be earnings-per-share accretive in the second full fiscal year after consolidation. [However, EPS dilution in the first fiscal year has been weighing on BHP/BBL’s share price since the offer became public.] It added that an acquisition would accelerate the company's entry into the fertilizer industry and would be consistent with its strategy of becoming a leading global miner of potash, with Potash's mining operations "a natural fit" with its undeveloped potash holdings in Saskatchewan, Canada.

Potash is an important nutrient that replenishes soil and increases farmland's crop yield. Global potash supplies are relatively limited, and Potash Corp., based in the prairies of central Canada, controls about 20% of the supply.

Mr. Kloppers said the acquisition would also further diversify BHP's assets by commodity, geography and customer. A deal would represent a shift for BHP, which specializes in minerals and metals and has limited experience with customers who buy fertilizer.

The offer, subject to a 50% minimum acceptance condition, will formally commence by way of newspaper ads on Aug. 20 and end Oct. 19 unless it is extended, BHP said. Total funds required to complete the offer are about $43 billion, including funds required to pay down debt, BHP said.

The miner said it has arranged a new term and revolving facility agreement to fund the transaction.

Moody's Investor Services said Wednesday BHP's long-term credit rating of "A1" is at risk for a possible downgrade given the size of the transaction. But Moody's added that, assuming a takeover offer is completed near the announced price, it is likely a review wouldn't lead to a long-term rating below "A2," even if fully funded from debt and cash on hand.

BHP said it remains committed to maintaining a solid single-A credit rating and a progressive dividend policy, noting that the deal's financing facility would preserve BHP's financial flexibility.‹