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BHP Billiton weighs up hostile bid for Potash
BHP Billiton is weighing up the option of a hostile bid for Canada’s Potash Corp, to secure the world’s largest fertiliser producer. The board of Potash Corp of Saskatchewan rejected BHP’s $US38.6 billion ($43bn), or $US130 a share, bid, saying the offer was too low. But analysts expect the global diversified miner to increase the proposal.
Analysts said it was likely that the world’s largest miner could
increase its offer, with figures ranging from $US145 a share and $US150 a
share without diluting its earnings.
Credit ratings agency Moody’s said a successful acquisition of Potash
Corp would increase BHP’s asset and geographical diversity in a potash
market that has solid medium and long-term fundamentals.
“If a formal takeover offer is made, and predicated upon substantial
debt raising, the long-term A1 ratings of BHP Billiton entities are
likely to be placed on review for possible downgrade,” said Terry
Fanous, a senior vice-president at Moody’s.
“Assuming a takeover offer is completed at around the announced price,
it is likely that the outcome of the review will not lead to a long-term
rating below A2, even if fully funded from debt and cash on hand.”
The New York-listed shares of Potash Corp closed up $US31.02, or 28 per
cent, to $US143.17 in anticipation of a higher offer, valuing the
company at $US43.7bn.
Shares in BHP were down 3.48 per cent at $38.80 today, following the launch of the bid.
Credit Suisse analyst Paul McTaggart said his US colleagues valued Potash between $US148 and $US180 a share.
“Now that Potash directors have rejected the initial approach it begs
the question as to how far BHP can go,” he said in a client note.
“Our analysis suggests that 50 per cent premium at $US163 per Potash
share. To us this deal does have merit and we expect BHP to come back
with a revised offer in the coming weeks or months.
“On our numbers even a 50 per cent premium may not be out of the question.”
Potash chief executive Bill Doyle has left the door open for future
bids, saying the board “is not opposed to a sale, but opposed to a
steal”.
“We believe that BHP intentionally launched its proposal just as the
fertiliser industry is emerging from an unprecedented demand decline
associated with the severe global downturn, in order to seize the value
that Potash Corp is poised to create,” he said.
BHP chairman Jac Nasser, in a letter to the Potash Corp board, said that BHP wanted to do a friendly deal.
But the company was understood to be willing to make its pitch directly to shareholders.
Citi analyst Clarke Williams said the cost of getting a friendly deal through looked too high.
“BHP would be better off not pursuing an acquisition of Potash Corp,” Mr William said.
“The cost of obtaining a friendly deal that would be needed to gain
approval, given POT Shareholder Rights Plan, looks too high. We believe
BHP would gain more long-term value by buying back its own shares or
continuing to develop the Jansen Potash project.”
Analysts said it was unlikely that a rival would emerge to force BHP into a bidding war.
Mr McTaggart said rival bidders were hard to think of, as Rio sold its
potash assets in 2009 and Brazil giant Vale was focussing closer to home
for its potash growth.
“In the agricultural space it is difficult to find buyers with the
wherewithal to be able to purchase a company the size of Potash,” he
said.
BHP has more than $US9bn in cash and financiers said that it would have
little difficulty raising the debt required to finance what would be the
biggest deal in the world this year.
UBS analyst Glyn Lawcock said BHP could look to reduce debt through
asset sales, adding that the move indicated that the mining giant has
confidence in its future cashflow.
But Mr Lawcock also said the move on Potash Corp could mean that BHP was
not convinced its Pilbara iron ore joint venture with Rio Tinto would
go ahead, and therefore not have to pay Rio the $US5.8bn equalisation
payment.
Source: The Australian
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