As BHP makes Potash Corp. offer, would-be rivals in talks on bids

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A number of potential suitors are eyeing takeover target Potash Corp. as it defends a $38.6-billion (U.S.) hostile bid from BHP

Several companies are in talks over the possibility of making a competing bid for the world's largest potash producer, according to sources.

"There are a lot of discussions going on and a lot of people paying attention to the situation," said a source familiar with the matter.

Saskatoon-based Potash Corp. declined to comment Thursday on whether it was in talks with other parties.

Potential suitors may include the world's other two majors miners, Brazil-based Vale SA and Anglo-Australian firm Rio Tinto as well as state-backed firms from China and possibly Russia, analysts say.

Alternative transactions for Potash Corp. could include scenarios other than an outright bid for the company. For example, a sovereign wealth fund such as China Investment Corp. could make a direct investment in Potash that would make it a significant minority shareholder that could help Potash rebuff BHP's unsolicited offer.

China

CIC, or another Chinese firm, could also bankroll a group of companies making a competing bid. Chinese chemical giant Sinochem Group is among the companies that could play a role in a rival transaction. Potash has a 22-per-cent interest in Sinochem's fertilizer unit, Sinofert.

"It is no secret that China has been acquiring production across a number of commodity classes," Macquarie Research analyst Duncan McKeen said in a recent report. "Given that it is still a large net importer of potash, it may be a logical buyer of potash production."

China is the world's largest fertilizer consumer, accounting for about 30 per cent of global consumption. It also imports nearly half of its potash requirements. Chinese leaders have encouraged companies to secure commodity supplies to avoid the dependence the developing nation has on producers of other materials, such as iron ore.

There have also been reports recently that China is interested in buying a 25-per-cent stake in Russia's state-owned potash producer Belaruskali.

BHP confirmed its hostile bid for Potash Corp. on Wednesday, calling its $130 per share offer "full and fair." Potash Corp. has rejected it as "grossly undervalued."

Potash Corp. shares, meanwhile, continue to climb, closing at $148.84, up 91 cents on the New York Stock Exchange Thursday, well above BHP's $130-per-share offer.

Analysts expect BHP will likely raise its bid to as much as $180 per share.

"We consider it highly unlikely that BHP Billiton will succeed with a $130 hostile bid." said Mr. McKeen, who sees the bid rising to between $160 to $165 per share.

BHP officially launched its $130 (U.S.) per share bid on Friday. The company said the bid represents an "attractive" premium of 20 per cent to the closing price of Potash Corp.'s shares on the New York STock Exchange on Aug. 11, the day before it was presented to Potash Corp. in a meeting between the two company CEOs.

BHP said the bid is open for shareholder acceptance until midnight on Oct. 19, " or such later date or dates as may be fixed by the offeror unless the offer is withdrawn."

BHP said the takeover will be funded through debt, including revolving facilities, while maintaining its single-A credit rating.

Potash Corp. confirmed Friday morning that its board will review the formal offer, but noted that it remains unchanged from the original proposal it has already publicly rejected.

"Potash Corp.'s Board will make a recommendation to shareholders regarding the offer, but in the meantime, the Potash Corp. board advises shareholders not to take any action regarding the offer," the company said in a statement Friday.

Potash will have 15 days to respond to the formal bid, which BHP has said will expire in 60 days, or at midnight Oct. 19. It has also left open the door to an extension.

Some say the timeline is rushed, showing BHP is in a hurry to seal a deal with Potash Corp., believing the company's prospects will only improve, making its price more expensive the longer they wait.

"In our view, the recent decline of Potash Corp.'s share price (which bottomed in early July, 2010) is likely to have been the catalyst for BHP's move to present an offer to the Potash Corp. board," Morgan Stanley said in a report, adding that BHP could pay up to $180 per share.

The offer is a 16-per-cent premium to the closing price of Potash Corp. shares before the offer was unveiled by Potash on Tuesday.

BHP chief executive officer Marius Kloppers flew to Chicago on Aug. 12 to present the bid to Potash Corp. CEO Bill Doyle.

Mr. Kloppers hasn't ruled out the possibility of rival bids.

"Nothing is perfect in life. I obviously can't stand here today and tell you that there won't be somebody else that's interested in these good assets, but I think that - I hope that - I've illustrated that they do fit with us, that, at risk of overstating it, that these assets may be a natural fit in our portfolio," he told analysts during a conference call on Wednesday.

"I can't rule out somebody else being interested, but I certainly do hope that the .. the combination of all of these factors that I've stated make our offer, which is full, a compelling offer."