Anglo Potash Ltd. and BHP Billiton Diamonds Inc. said May 12 that they have entered into a definitive agreement whereby BHP Billiton will offer to acquire all of the issued and outstanding common shares of Anglo Potash at a price of C$8.15 cash per common share. The total equity value of the transaction is approximately C$284 million on a fully-diluted basis.
While several potash and phosphate startups have been in the news lately, mining giant BHP has the resources to actually put a new mine on the map, even though such an endeavor could take over $2.5 billion and five-to-seven years, according to BHP’s potential competitors. Some have speculated that BHP might buy an existing potash producer rather than going to the trouble of developing its own greenfield project. However, with today’s pricey potash market, buying an existing player would not come cheap.
Anglo Potash is a mineral exploration and development company that has been focused on developing a potash mine in Saskatchewan. Anglo entered into a joint venture with BHP Billiton pursuant to which Anglo Potash holds a 25 percent interest (through its wholly-owned subsidiary, Prairie Potash Corp.), and BHP Billiton holds a 75 percent interest in the JV, with BHP Billiton being the operator of the JV. The JV holds 32 potash permits, some of which are pending, covering over 1.8 million acres.
BHP Billiton Diamonds Inc. is a subsidiary of the BHP Billiton Group. BHP Billiton is the world’s largest diversified natural resources company, with some 39,000 employees across 100 operations in approximately 25 countries. Its operations encompass a broad range of commodities, including aluminum, energy coal, metallurgical coal, copper, manganese, iron ore, uranium, nickel, diamonds, silver and titanium minerals, oil, gas, and liquefied natural gas.
In 2007, BHP Billiton generated turnover of US$47.5 billion and attributable profit (excluding exceptional items) of US$13.7 billion. BHP Billiton is dual listed on both the Australian and London stock exchanges, with its headquarters in Melbourne, Australia.
The $8.15 per share cash consideration represents a 34 percent premium over the closing price of the common shares on the TSX Venture Exchange on May 9, 2008, and a 36 percent premium based on the volume weighted average price of the common shares over the 60 trading days prior to May 12, 2008. Anglo’s board of directors has unanimously approved the acquisition and recommends that shareholders vote their shares in favor of the deal, following receipt of a fairness opinion from its financial advisor.
The transaction is to be completed by way of a statutory plan of arrangement. It will be subject to the approval of 66 2/3 percent of the votes cast by Anglo Potash’s security holders and a simple majority of the votes cast by the shareholders (other than BHP Billiton and its related parties) at a special meeting, which is currently anticipated to take place in July 2008. The acquisition will also require court approval. If Anglo’s security holders approve the acquisition and the requisite court approval is obtained, the closing is expected to take place in July, 2008. The information circular for the acquisition is expected to be mailed to Anglo’s security holders later in this month.
Todd Montgomery, Anglo’s President and CEO and a director, and the other directors of Anglo – Brent Walter, Randal Ludwar, Corey Giasson, and Joseph Montgomery – have entered into a lock-up agreement with BHP Billiton under which they will irrevocably vote approximately 26 percent of Anglo’s outstanding common shares (including shares to be issued upon exercise of outstanding vested options) in favor of the transaction. The directors have agreed to exercise their vested options to vote the underlying shares in favor of the transaction. The lock-up agreement also provides BHP Billiton with an option to acquire, for $8.15 per share, an aggregate of 5,300,000 shares of Anglo, representing approximately 16.7 percent of the outstanding shares from the directors of Anglo Potash if the definitive agreement is terminated in certain circumstances. These shares, together with the 1,039,093 previously-owned shares (or approximately 3.2 percent), represent approximately 19.9 percent of the outstanding shares of Anglo Potash.
Anglo has agreed not to solicit or initiate any discussion regarding any other business combination or sale of material assets. Anglo has also granted BHP Billiton a right to match any superior proposal and a termination fee of $10 million, payable to BHP Billiton by Anglo if the definitive agreement is terminated as a result of Anglo recommending or approving an acquisition proposal or entering into an agreement with respect to a superior proposal or similar circumstances.
“We are pleased to take this step with BHP Billiton and believe the acquisition will benefit the shareholders of Anglo Potash,” said Todd Montgomery. “We have been joint venture partners with BHP Billiton for two years of exploration and development, the success of which is underscored by today’s excellent offer from BHP Billiton.”
BHP Billiton’s President of Diamonds & Specialty Products, Graham Kerr, added that “I wish to thank Todd and his team for their continual support as our JV partner; we look forward to the next chapter in the potash exploration and development program and building upon our successful history of investment and growth in Canada.”