Potash a hot commodity

Potash chief executive Bill Doyle said in a widely publicized statement: "PotashCorp has been approached by, and has initiated contact with, a number of third parties who have expressed an interest in considering alternative transactions." He added that this included "all sorts of different players. People would be surprised at what we're seeing," and described the discussions as involving "superior offers."

He declined to name anyone specifically, but quipped that to remain in contention, BHP would have to come back with a bid that is "a hell of a lot more than the price on the table."

The bidding war both masks and highlights a major turnaround in the market as compared to late 2008, when the Potash share price was very much out of favor. This owes much to a broader sentiment shift, driven especially by the rising economies of Asia and other emerging markets, according to a senior Australian investment banker.

"We're seeing much increased interest in the soft commodities space, i.e. agriculture and related areas globally," he told AVCJ. "That's what has driven BHP's bid for PotashCorp. But it's not just that deal. As countries get richer, they want to eat more protein, better food. So indirectly that pushes demand for grains, in part to feed their livestock. This is a major new theme. And I see it running for some time."

Brazil's Vale has apparently already bowed out. And Sinochem, while it is China's top fertilizer business (in a country that is the world's number one consumer of the product), is still seen as constrained in terms of its ability to go it alone in a deal of this size and nature.

In the context of PotashCorp, though, some sources are of the opinion that the bidding battle is, above all, about pushing BHP to raise its bid, by some 25% or more. However, Chief Executive of BHP, Marius Kloppers, is not afraid of walking away from acquisition plans that are not the right price. He shelved a $66 billion hostile takeover bid for Rio Tinto in 2008 after commodity prices fell and Rio's debt burden became a real and deal-breaking problem.

For a group like Hopu, however, there could be regulatory hurdles. Canada would likely be less than elated about the prospect of another Chinese juggernaut buying a high-profile flagship company like Saskatchewan's PotashCorp., according to sources. However, CIC certainly has the firepower to trump BHP. And with Chinese fertilizer demand ramping up strongly, CIC working alongside Hopu in a conglomerate context is a possibility. Hopu, meanwhile, has experience in large-scale commodities and resources investments in North America, having joined forces with Singapore SWF Temasek Holdings in a $600 million investment in US gas and petrochemicals major Chesapeake Energy Corp. in May.

PotashCorp shares were trading at around $240 per share early in 2008's agriboom, and Doyle and company have made it clear that they will not be sold for less than full value in a rising market. The company's share price closed at $146.64 on August 30. So the ball is back in BHP's court, but Kloppers has publicly stated that he "wouldn't do anything silly."

 

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• Topics
• Australasia
• Buyouts
• CIC
• Hopu Investment Management