Potash Corp. searched for a white knight Friday as BHP Billiton formally launched it $39 billion hostile offer for the world’s largest fertilizer firm.
Potash is soliciting alternative bidders willing to pay more than the $130 a share offered by BHP, the world’s largest mining company, a source close to the matter said.The source said Potash Corp. was confident alternative bids would emerge for the leader in a sector with huge growth potential.
The BHP bid has set a high bar for rivals, but China — one of the world’s top potash importers — could launch its own bid to secure supply of the vital crop nutrient.
BHP officially kicked off its offer, taking out full-page advertisements in Canadian and U.S. newspapers. The BHP bid will run until Oct. 19, the company said.
Potash advised its shareholders to ignore the bid until it could review the offer documents.
“Potash Corp.’s board will make a recommendation to shareholders regarding the offer, but in the meantime … advises shareholders not to take any action regarding the offer,” a statement said.
Potash is a crucial ingredient in producing better crop yields, crucial to China as its growing middle class increases the rate of food consumption. Shrinking amounts of arable land worldwide and China’s limited domestic supply of potash increase its importance in the world’s most populous nation.
“The notion is that this is the Cadillac of the (fertilizer) business,” the source said.
Potash, based in Saskatchewan, declined to comment about possible counter bidders.
Top Chinese fertilizer company Sinofert — in which Potash owns a 22 percent stake — is the most logical candidate to lead a counter offer, industry sources say.
While Sinofert is small — its $3.8 billion market value is less than a 10th of Potash’s — its parent, Sinochem Group, is a huge state-owned group. Sinochem’s revenue were $36 billion last year.
A spokesman for Sinofert said the company would “pay close attention” to BHP’s bid and added that the group “was interested in overseas potash investment opportunities,” the Financial Times reported.
Aluminum giant Chalco and state-backed chemicals company ChemChina could also emerge as potential bidders, said the sources who spoke to Reuters.
A Sinofert spokeswoman contacted by Reuters declined to comment, while Chalco and ChemChina could not be reached.
“I assure you there are numerous organizations in China who would chase potash (assets),” said an Asia-based investment banker who has advised Chinese resources companies on overseas deals but was unauthorized to speak publicly about the matter.
“China has very few potash reserves for itself, it’s a commodity which they’re going to be in short supply of. And, does China want to be over the barrel on yet another commodity?”
BHP’s close rival, Rio Tinto, had also been touted as one potential — albeit unlikely — white knight for Potash. But Rio Chief Executive Tom Albanese declined comment on Friday on whether Rio would consider a rival bid.
Both Rio and BHP were preoccupied on Friday in fending off speculation their $116 billion iron ore joint venture would not get regulatory approval.
