BHP’s bid for Potash Faces Stiff Opposition from Canada

By Leia Michele Toovey-Exclusive to Potash Investing News

The province of Saskatchewan had decided that it opposes BHP’s bid for Potash Corp., creating a hurdle that the mining giant will have difficulty clearing, if it hopes to be successful in acquiring the company. While Canada’s federal officials have the final decision on whether to approve the deal, they will take the province’s opinion to heart in their decision process. Unless circumstances change dramatically, the provincial government appears likely to formally announce Thursday that it will ask the federal government to block the $38.6-billion deal because it thinks the provincial treasury runs the risk of losing billions in royalty revenue over the long term. BHP (NYSE:BHP) says it’s aware the Saskatchewan government is likely to object to the deal and has offered to contribute $370 million to help offset the shortfall. But Saskatchewan says the lost revenue could approach $3 billion over the next 10 years. The province is seeking a BHP contribution of at least $1 billion to an infrastructure fund. Saskatchewan said talks had broken down with BHP after the miner failed to meet its demands.

BHP’s attempt to impress the province of Saskatchewan and its residents has fallen short. According to a poll conducted by Insightrix Research, Fifty-five percent of 829 respondents said they either “strongly” or “somewhat” oppose the takeover by the world’s biggest mining company, compared with 13 percent who support it and 21 percent who are indifferent. Saskatchewan’s resident’s opinion will be an important factor for the Canadian Government to consider, as public opinion is an important facet for the Conservative leadership to consider in their hopes for reelection. Canadian’s have already expressed some hostility toward their government considering the sell-off of many local companies. A buy-out of Potash by an international company would sit in the forefront of voter’s minds when it came to election time.

Potash Corporation (NYSE:POT) has promised to cement its ties within the Province of Saskatchewan. The company claims that it will keep its headquarters and top managers in Saskatoon, while relocating legal, human resources and investor relations executives to the city from their postings in Chicago. Potash Corp renewed its commitment to work with Canpotex, and promised to encourage development and employment in Native American communities, keep up philanthropic giving, and to do business with local suppliers. At the same time, Canadian Industry Minister Tony Clement told media that despite rumours over other company’s interest in placing a bid on Potash Corp, he has yet to speak directly with any potential suitors.  “There are no other bidders,” Clement said. “There’s rumors of bidders, but no one has formally” bid for Potash Corp.  Potash Corp. Chief Executive Officer Bill Doyle said this week has a different tone, saying that the company is currently  evaluating “several” alternatives to BHP’s bid.  One potential bidder, China’s Sinochem Group (SHA:600500)  squashed rumours over a rival bid this week. Instead, Sinochem signed a deal ensuring supply of Canadian potash for the three years ending 2013. The deal was with Potash Corp. of Saskatchewan and two other producers. The supply agreement is capped at $600 million, $730 million and $870 million for the three years ending Dec. 31, 2013, respectively.

After reporting optimistic earnings, Yara CEO Joergen Ole Haslestad said his company was open to buying assets from Potash. “If they came to us we would consider that and do calculations to see how that would fit into our system,” Haslestad said.  Yara had “quite considerable possibilities to increase” its presence in North America or elsewhere. “Yara will grow all over the world,” he said, adding it would exercise “capital discipline” and not overpay a determination it showed in the Terra case this year by walking away after being outbid. Yara’s finance chief said the firm could make an acquisition of up to $1.5 billion without raising additional equity in the aftermath of its failed bid for U.S.-based Terra Industries. Yara’s earnings before interest, tax, depreciation and amortization rose to 2.49 billion Norwegian crowns ($425.3 million) in July-September from 860 million a year ago; beating the 2.36 billion crown average estimate analysts had issues. “Fertilizer margins improved, sales volumes increased and our plants are running close to full capacity,” Haslestad said.

With help from Assistant Editor Vivien Diniz