Potash Mulling Break-Up

Posted Oct 11th 2010 9:40AM by Mark Fightmaster
Filed under: Deals, BHP Billiton Ltd ADR (BHP), Potash Corp. of Saskatchewan (POT)

Canadian fertilizer firm Potash Corp of Saskatchewan (POT) is in the middle of a rash of takeover-related news this morning. First, Britain's Sunday Telegraph reports that Potash is working on a break-up plan in hopes of stopping BHP Billiton's (BHP) takeover bid. According to the report, Potash would sell its nitrogen and phosphorous assets, pay a $70 per share dividend, and increase its debt pile.

In addition to the weekend's news, The Globe and Mail reported Friday that Chinese firm Sinochem has approached the National Mineral Development Corporation (NMDC) about a joint bid for Potash. Sinochem is making the pitch for a joint bid because it may believe that an individual bid would be shot down by Canada's political powers.

The new bid could stem from Potash's assertion that BHP's $130-per-share offer ($39 billion) is too low, as Reuters reported. There are beliefs that the Canadian firm is open to a "white knight" offer, as the Globe also reported. The $130 offer spurred shares Potash to a rather nice rally in August, from its $110 level to the $150 level..

Some may think that Potash is being hard-headed in trying to get more than $130 per share from BHP, but I just don't think that is the case. First, as shareholders, isn't that what you would want it to do? The stock is trading in the d $145 region, so settling for $130 per share would not be a good business move.

Second, BHP (and possibly Sinochem) are both trying to basically steal Potash -- the largest fertilizer firm in the world. The fertilizer industry is ripe for takeovers, as many consider it one of the new frontiers in investing. What's more, with farming and fertilizers status as an up-and-coming area of investing it makes sense that some companies may try to capitalize on a low-ball offer for Potash. I expect this struggle to continue for some time.

Tags: bhp, buyout, buyouts, featured, inthenews, potash, Sinochem, takeover, takeover bid, takeovers