BHP Billiton has made its much rumoured move to grow its fledgling fertiliser business by launching a direct assault at the world’s biggest company in the industry Potash Corp of Canada, which immediately rejected the $US39 billion (A42.3 billion) offer.
Potash Corp said the BHP offer of $US130 ($A144) a share in cash, a 16% per cent premium, was "grossly inadequate" given Potash Corp’s prospects.
Potash shares soared 27% in trading in Canada to top the BHP offer, BHP shares fell 2.4% in London.
BHP has been expanding its holdings of potash bearing ground in Canada since 2006, as this entry on its website explains(http://www.bhpbilliton.com/bb/ourBusinesses/diamondsSpecialtyProducts/potashDevelopment.jsp).
Despite that background, Potash Corp went into full takeover defence mode, aggressively adopting measures designed to prevent a hostile takeover of the company, commonly called a poison pill.
In a statement on its website dateline Saskatoon, Saskatchewan (http://www.potashcorp.com/news/990/), Potash Corp said its directors "thoroughly reviewed BHP Billiton’s unsolicited proposal and concluded that the proposal is grossly inadequate."
It said the offer "substantially undervalues Potash Corp and fails to reflect both the value of our premier position in a strategically vital industry and our unparalleled future growth prospects."
“The fertiliser industry is emerging from the recent global economic downturn, and we feel strongly that PotashCorp shareholders should benefit from the current and potential value of the company. We believe the BHP Billiton proposal is an opportunistic effort to transfer that value to its own shareholders.”
Potash Corp chairman Dallas J Howe said shareholders needed to be "aware of this aggressive attempt to acquire their company for significantly less than its intrinsic value," describing the BHP offer as "an opportunistic effort to transfer that value to its own shareholders."
The company said its business held a "premier position in a strategically vital industry."
"The Board is confident that PotashCorp can deliver significantly greater value to its shareholders than BHP Billiton’s inadequate proposal, Potash said in the statement.
" In addition, the BHP Billiton proposal does not reflect PotashCorp’s substantial recent and ongoing investments to increase capacity, the value of PotashCorp’s strategic equity investments in China, Chile, Jordan and Israel, and its unmatched ability to meet the needs of North American customers and growing offshore potash markets."
"BHP Billiton is opportunistically attempting to transfer the upside value in PotashCorp to its own shareholders at the expense of PotashCorp shareholders.
"PotashCorp believes the timing of the BHP Billiton proposal is highly opportunistic and an ill-disguised attempt to exploit an anomaly in the equity market valuation of PotashCorp.
"PotashCorp believes that BHP Billiton intentionally launched its proposal just as the fertilizer industry emerges from an unprecedented demand decline associated with the global downturn in order to seize the value that PotashCorp is poised to create."
BHP said in a brief statement on Tuesday that it “continues to review its options and will make a further announcement in due course.”
In a letter sent to Mr Howe on August 13 and made public yesterday by Potash, Jac Nasser, BHP chairman, said Marius Klopper, the mining group’s chief executive, had outlined the proposal to William Doyle, his counterpart at PotashCorp, the previous day and had sought a response by August 18 (http://media.ft.com/cms/9324df8e-a9ea-11df-8eb1-00144feabdc0.pdf).
Mr Nasser said the proposal offered what he termed “significant undertakings”, including establishing BHP’s global potash undertakings in Canada.
In reply, a letter sent to Mr Nasser was released by potash, which read in part:
"In our view, PotashCorp is significantly and disproportionately undervalued as a result of our strategic decisions to match production with demand while continuing to invest in our infrastructure.
"The Board determined that your proposal fails to adequately recognize the value of PotashCorp’s premier position in the industry, the value of our planned capacity expansions and the value of our equity investments.
"The PotashCorp Board strongly and unanimously believes that PotashCorp has a bright future as an independent company and nothing in your August 13, 2010 letter provides the basis for PotashCorp to alter its course."
The rebound in fertiliser demand is nowhappening and helped boost PotashCorp’s pre-tax profits in the first half of the year to $US1.28bn from $US452m the year before.
The deal comes a day after Agrium, the Canadian fertiliser group launched a $A1.2 billion bid for AWB, the Australian grain trader now in talks about a possible equal merger with Graincorp.
It also comes as moves start in Russia to effect a consolidation of that country’s fertiliser industry.
