BHP goes hostile in bid for Potash

BHP BILLITON launched a hostile bid yesterday for PotashCorp, ignoring cries of undervaluation from the Canadian fertiliser group’s executives as the mining group took its $39 billion (€30.35 billion) offer directly to shareholders.

Analysts and investors expect the offer to rise, despite the claims of Marius Kloppers, BHP chief executive, that the $130 per share offer was “full and fair”.

“The investors are saying that $160 per share is the level at which they start listening,” said a US mining analyst.

In a bid that stands to be the biggest of the year, there was no hint last night of any competitors coming forward with bids that would immediately drive the price higher. By opening its offer at nearly $40 billion, BHP erected financial barriers to entry that are insurmountable to any but a handful of miners such as Rio Tinto, Vale, Aluminum Corp of China, or Xstrata.

Tony Robson, mining analyst at BMO Capital Markets, said: “Vale is already spending $11 billion on South American fertiliser assets and is refocused on Brazil, and Rio Tinto cannot afford to make a potential error of this magnitude given the fallout of its bid for Alcan.”

Analysts and industry executives speculated that PotashCorp was seeking a blocking defence, possibly involving Brazil’s Vale and Sinofer, a Chinese state fertiliser company.

PotashCorp attempted to raise its defences on Tuesday by passing a “poison pill” shareholder rights plan. Bidders can appeal to Canadian regulators to strike down poison pill defences, as Xstrata attempted during its successful takeover of Falconbridge.

Mr Kloppers signalled that BHP could lead the potash market away from negotiated pricing in much the same way that BHP helped bring an end to benchmark iron ore pricing.

PotashCorp is a leader of Canpotex, a three-member cartel marketing organisation. – (Copyright The Financial Times Limited 2010)