K+S Aktiengesellschaft, Kassel, Germany, and junior exploration company Potash One Inc., Vancouver, B.C., announced Nov. 22 that they have entered into a Support Agreement pursuant to which K+S will make an offer to acquire all of the issued and outstanding common shares of Potash One at a price of C$4.50 per share in cash for a total consideration of approximately C$434 million (EUR 311 million).
The offer represents a 24.3 percent premium to the closing price of Potash One shares on Nov. 19, 2010, on the Toronto Stock Exchange; a 31.3 percent premium over the 10-day weighted average trading price of the shares up to and including Nov. 19; and an 82.2 percent premium to Potash One’s share price of C$2.47 on Aug. 16, 2010, the day prior to PotashCorp’s rejection of BHP Billiton’s unsolicited proposal to buy PotashCorp.
The Potash One board of directors has unanimously determined that the transaction is fair to Potash One shareholders and is in the best interests of the company and its shareholders. It recommends that shareholders tender their common shares to the offer. Potash One’s board has received an opinion from GMP Securities LP that the consideration to be received by the Potash One shareholders is fair.
Potash One holds several potash exploration licenses spanning more than 515,000 acres in Saskatchewan, including the Legacy Project an advanced greenfield project to develop a potash solution mine. K+S estimates production capacity of up to 2.7 million mt/y of potassium chloride. The realization of this production capacity would represent an approximately US$2.5 billion capital investment into Saskatchewan and create up to 300 highly skilled jobs. The project headquarters will be located in Saskatchewan, Canada. K+S expects initial production no earlier than 2015.
“Today’s announcement delivers on our commitment to maximize value for Potash One shareholders while eliminating further risks inherent in developing and funding the Legacy Project,” said Paul Matysek, Potash One president and CEO. “We have advanced this property from a greenfield discovery to an economically robust, permitted, feasibility stage, solution mining project. K+S is a highly qualified global leader with over 100 years of experience in the potash industry and a market capitalization of close to EUR 10 billion (US$13 billion); they have the technical and operational depth and the proven marketing and sales expertise to successfully bring Legacy forward.”
“Our all-cash offer provides certain and compelling value for Potash One shareholders,” said Norbert Steiner, K+S board chairman. “The offer complements our growth strategy to expand our potash capacities and our average mine life. Furthermore, the new potash assets together with our existing domestic potash sites will enhance our international competitiveness and as a result strengthen the K+S Group overall, in Europe as well as overseas.”
The transaction is to be effected by way of a takeover bid. Full details of the offer will be included in a formal offer and take-over bid circular, which is expected to be mailed to the shareholders by mid-December 2010. The transaction is expected to close in the first quarter of 2011. The offer will be open for acceptance for a period of not less than 35 days and will be subject to certain customary conditions, including there having been validly deposited and not withdrawn at the expiry time at least 66 2/3 percent of the outstanding common shares of Potash One. The parties says the transaction is not subject to “net benefit to Canada” review under the Investment Canada Act.
The directors and officers of Potash One will enter into lock-up agreements with K+S pursuant to which they have agreed to tender approximately 21 percent of the Potash One shares to the offer.
The Support Agreement provides for customary deal protections, including a non-solicitation covenant by Potash One, a five business day right for K+S to match any superior proposal received by Potash One, and payment by Potash One to K+S of a termination fee of CAD 16.5 million if the offer is not completed in specified circumstances. The transaction is not subject to a financing condition.
As a condition of entering into the Support Agreement, an affiliate of K+S has subscribed for C$30 million convertible secured debenture from Potash One. The proceeds from the debenture will be used to fund immediate water infrastructure construction commitments related to the Legacy Project.
The K+S entrance into Saskatchewan upgrades the number of possible greenfield potash mines for the near term to at least four. In addition to K+S, Brazil’s Vale SA and Australia’s BHP Billiton are claiming an interest in building a mine in Saskatchewan (GM Nov. 22, p. 1, p. 9). PotashCorp has also said that if anyone builds a new greenfield mine in Saskatchewan it should be PotashCorp. However, market watchers continue to discuss whether it is feasible to build a new greenfield mine at this time, saying prices must increase and remain at a sustained level for some time to support new development.