TONY LEWIS
The days of the Canpotex potash marketing group could be numbered if BHP Billiton Ltd. succeeds in its hostile quest for Potash Corp. of Saskatchewan .
BHP chief executive officer Marius Kloppers said Wednesday his company would honour commitments among the partners in the powerful group, which represents Canada's major producers in key negotiations with global buyers, but that the mining giant prefers to market its products itself.
"Philosophically, I have to refer back to our baseline demeanor, which is to market our product ourselves, spend in front of our customers ourselves, run our assets at full capacity and take the market prices," said Mr. Kloppers, who took his $39-billion (U.S.) bid for Potash Corp. public Wednesday, saying the offer would go directly to shareholders.
Potash Corp. disclosed the proposal Tuesday, rejecting it in no uncertain terms as undervaluing the world's biggest potash producer, and analysts believe BHP will be forced to bid more than the $130-a-share it is offering.
Potash Corp.'s commitments to Canpotex, which also represents Agrium Inc. and Mosaic Corp., are not publicly known, but analysts are speculating on its future.
"If BHP is successful in acquiring Potash Corp., this likely spells the end for Canpotex as it would lose its largest member (Potash Corp. accounts for 54 per cent of Canpotex's volumes)," said CIBC World Markets analyst Jacob Bout." BHP would likely utilize its own marketing capabilities given its international presence versus joining Canpotex. "
A Canpotex official could not immediately be reached for comment. Canpotex, formed by the three companies to sell and distribute potash exports from Saskatchewan, is a global force, accounting for some 40 per cent of world-wide potash trade, according to BMO Nesbitt Burns estimates.
Mr. Kloppers said the offer is "full and fair" and will "provide certainty" to Potash Corp. shareholders.
During a conference call with reporters, Mr. Kloppers said the company's potash focus would be "wholly focused on Canada," should the bid be successful.
BHP would also continue with plans to build its own new projects in Saskatchewan, and he said there were no plans to sell any Potash Corp. assets if a deal is done.
"Our funding is no way contingent on selling assets," he said. "What I hope to do is own the entire business with the facilities."
Mr. Kloppers wouldn't comment on whether the company would be willing to increase the bid.
"The acquisition will accelerate BHP Billiton's entry into the fertilizer industry and is consistent with the company's strategy of becoming a leading global miner of potash. PotashCorp's potash mining operations are a natural fit with BHP Billiton's greenfield land holdings in Saskatchewan, Canada," BHP said in a statement.
BHP, the world's largest miner, said it plans to take the offer to a vote of Potash Corp. shareholders. The offer expires at midnight Oct. 19, but could be extended.
The Melbourne-based miner said it expects to spend $43-billion (U.S.) to buy the company, including funds to repay Potash Corp. debt.
It also committed to keeping "current levels of employment" at Potash Corp.'s Saskatchewan and New Brunswick operations "for the foreseeable future."
Potash Corp. stock surged after it disclosed the bid as investors signalled they expect a higher offer to emerge.
"I am not saying that we are opposed to a sale, but what I am saying is we are opposed to a steal of the company," said Bill Doyle, chief executive of Potash Corp., Canada's sixth-largest company by market value.
The resurgence of the global "fertilizer wars" comes at a time of heightened concern about future global food shortages. Prices for key staples such as wheat and corn have been rising this summer amid extreme weather conditions in key countries such as Canada and Russia, which have reduced crop forecasts. Potash is a key ingredient in fertilizer used to boost crop production.
Although potash prices have tumbled from a high of about $1,000 dollars a tonne, BHP's bet is based on projections that global demand for food will double by 2050, and that farmers around the world - particularly in fast-growing markets such as India and China - will require enormous volumes of fertilizer.
Mr. Kloppers presented the offer to Potash Corp.'s Mr. Doyle at a meeting on Aug. 12 in Chicago, where Mr. Doyle is based. BHP said it wanted to "move expeditiously," asking for a formal reply by Wednesday.
BHP called the offer "an attractive premium" for Potash Corp. shareholders and proposed keeping the company's global potash headquarters in Canada and the management of the Canadian potash operations in Saskatchewan.
"We are committed to being a strong corporate citizen in Saskatchewan and Canada," BHP chairman Jac Nasser wrote in a letter to his Potash Corp. counterpart Dallas Howe. The letter also referred to commitments related to jobs, capital spending and community programs. Saskatchewan legislation prevents Potash Corp. from moving its headquarters out of the province.
After its board considered the BHP offer, Potash Corp. publicly denounced the "aggressive attempt" to take over the company, calling it an "opportunistic" bid that "grossly undervalued" its worth because potash prices are just starting to rebound from a steep slump during the recent recession.
In an interview, Mr. Doyle said one positive aspect of the hostile bid from BHP was that it "shined a very bright light on the value equation of Potash Corp., and people are going to get it." He wouldn't comment on any potentially higher offer from BHP or others, but did cite China, the world's largest buyer of potash, as the company's most important market.
China has the potential to be a key player in the situation. Due to its rapid economic ascendance, Chinese people are eating more meat, increasing the need for fertilizer to grow livestock feed. Today, the country uses about 12 million tonnes of potash per year and imports about 8 million tonnes.
A Chinese bid could be structured through state investment firm China Investment Corp. (CIC), China Aluminum Corp., or Sinofert Holdings Ltd., the fertilizer arm of chemical conglomerate Sinochem Corp. Sinofert is the largest fertilizer importer and distributor in China, and Potash Corp. owns 22 per cent of the company, which also mines potash in China.
Rather than an outright takeover, China could opt for a minority stake in exchange for a guaranteed supply, sources said. Such a move might be more politically palatable.
For instance, a Chinese company could bankroll an offer with a partner such as Brazil's Vale SA or London-based Rio Tinto PLC, or even Canada's Teck Resources Inc. and prevent political opposition by acquiring 49 per cent or less of Potash Corp.
"If I were the CEO of Potash, I would fly to China for help," said Na Liu of CNC Asset Management Ltd., who believes an outright bid from a Chinese entity is unlikely.
China's CIC paid $817-million (Canadian) earlier this year for a 45-per-cent stake in an Alberta oil sands project owned by Penn West Energy Trust, and $435-million for a 5-per-cent interest in the company.
Also this year, China's state-owned energy firm Sinopec paid $4.65-billion (U.S.) for a 9-per-cent stake in Syncrude Canada, one of the oil sands industry's top producers.
Demand for potash has been rising. Prices spiked to about $1,000 a tonne in 2008 amid global food shortages, after sitting around $200 for years. They then crashed to about $300 during the recession when farmers cut back, but have been climbing steadily since, to around $375 on Tuesday.