News is rife that Potash Corp./Saskatchewan (POT) is backing a group of investors to thwart the mining giant BHP Billiton’s (BHP) $38.6 billion taker over proposal. A Chinese major is suspected to contribute largely to the consortium with a lesser contribution coming from international sovereign wealth funds.
According to Associated Press, Sinochem Corp., the China-based chemical maker could lead the consortium as Sinochem is seeking approval from the Chinese government for making a counter take over bid for Potash Corporation. Sinochem seeks government assistance with low cost loans to acquire Potash. Sinochem could easily pick up the deal as Potash Corp owns a 22% stake in Sinofert, China ’s biggest potash importer and fertilizer producer and a Sinochem affiliate. As per the media, Potash Corp’s major rival Mosiac (MOS) could also be a part of the consortium.
The Chinese government might consider Sinochem’s request as China is one of the largest consumer and importer of Potash that is used in fertilizers. China is concerned over the BHP-Potash Corp. merger taking place as it would result in a monopolistic potash market structure, make BHP the sole seller of the “Price Quoter” and reduce buyers bargaining power.
Potash Corp has been looking for prospective bidders as well since it rebuffed BHP’s $38.6 billion or $130 per share takeover offer in August this year. Potash Corp. turned down the offer on grounds of undervaluation. Potash Corp is optimistic about the improving fertilizer industry. The company foresees higher demand for potash and believes that its growing potash capacity good enough to suffice the surge in demand. Potash Corp. strongly feels that BHP Billiton’s proposal substantially undervalues its recent and ongoing investments to increase potash capacity, the value of its strategic equity investments in China, Chile, Jordan and Israel, and its ability to meet the North American potash demand. However, BHP argues that the offer is in the best interest of the Potash Corp’s shareholders as it represents a 20% premium over the stocks closing price as on August 11, 2010.
To combat the takeover, Potash Corp. has embarked upon a shareholder rights plan, which would prevent any company from buying up more than a 20% stake in Potash. Issuing of the right would enable shareholders to buy one additional share at a discount for each that they had owned as of August 16, 2010. This would make the acquisition more expensive for the bidder. It appears that Potash will not leave any stone-unturned to fend off BHP’s acquisition bid. Potash’s fate will be decided soon with the BHP offer expiring on October 19, 2010.
Currently, Potash Corp. is a short-term (1 to 3 months) Zacks #3 Rank (Hold) and a long-term (6+ months) Neutral recommendation.