BHP Billiton is looking to address Canadian concerns about lost revenue from its takeover bid for Potash Corp after Saskatchewan province said it would not back the miner's $39 billion (€28.1 billion) bid.
An official with the Canadian province said BHP had failed to meet demands necessary to win Saskatchewan's backing of BHP's hostile takeover, possibly leading Canada to scupper the deal.
BHP, the world's biggest miner, offered Saskatchewan a fraction of the C$3 billion (€2.1 billion) over 10 years that the province is seeking to make up for expected revenue losses, the government official said, causing talks to break down.
Saskatchewan will now give the bid an unfavourable review later this week, a source familiar with the matter said, possibly leading to the Canadian government quashing the deal.
However, BHP said it was confident about addressing the tax-loss concerns and was working with the Canadian government's Investment Review Division (IRD) on making additional "significant" undertakings to get a deal across the line.
"BHP Billiton is confident it can address this concern and, in this regard, is prepared to make commitments which go beyond the requirements of prevailing Canadian legislation that should effectively address the tax loss concerns of the province," the miner said in a statement.
Saskatchewan, where the fertiliser producer is based, will play a key advisory role as the Canadian government decides whether to approve BHP's bid, or any other that may emerge, on the basis of whether it offers a net benefit to the country.
Potash has flatly rejected BHP's $130 per share offer and has repeatedly said it expects other offers. Potash shares remain above the offer price, suggesting that investors expect a sweetened bid.
"At the heart of any 'net benefit' calculation is the people of Saskatchewan being compensated for the C$3 billion in revenue Saskatchewan will lose over the next 10 years as a result of a BHP Billiton takeover of Potash Corp," the official said. "This would need to happen before we would even consider supporting the deal."
BHP offered a C$370 million one-time payment into an infrastructure fund, the government statement said, adding it "doesn't even come close to offsetting the province's revenue loss". Saskatchewan has not talked with BHP about a special tax, the statement said.
BHP said the tax concerns were mainly due to tax deferrals which were permitted under Canadian laws, adding it could make commitments beyond those laws to address the issue.
A source familiar with the deal said BHP had expected the opposition and did not regard it as likely to become a deal-breaker as Saskatchewan did not have the final say.
"I don't think this is seen as a fatal flaw," the source, who was not authorised to speak to the media, said.
BHP said it has been in talks with the Canadian federal government to address worries. A report by the Conference Board of Canada and commissioned by Saskatchewan said on October 8th that a BHP takeover was preferable to a takeover by a state-owned Chinese entity.
Canada's federal government has said it will consider Saskatchewan's views carefully as it determines if the bid is of net benefit to Canada, the litmus test for approval under the Investment Canada Act. Ottawa's deadline for its review is November 3rd.
Reuters