PotashCorp said Aug. 23 that after careful consideration, its board of directors voted unanimously to reject BHP Billiton’s unsolicited offer to acquire all of the outstanding shares of PotashCorp for US$130 per share in cash. The board unanimously recommends that PotashCorp shareholders reject the BHP offer and not tender their shares.
“The PotashCorp board of directors is unanimous in its belief that the BHP Billiton offer substantially undervalues PotashCorp and fails to reflect both the value of our premier position in a strategically vital industry and our unparalleled future growth prospects,” said PotashCorp President and CEO Bill Doyle. “The board thoroughly reviewed the formal offer documents in connection with BHP Billiton’s unsolicited offer and concluded that the offer is wholly inadequate and is not in the best interests of the company, its shareholders, or other stakeholders. We strongly urge shareholders to reject BHP Billiton’s opportunistic offer and not tender their shares.”
PotashCorp has already detailed reasons against the deal (GM Aug. 23, p. 1), but has added some additional ones. PotashCorp says the consideration represents a 13.1 percent discount to the closing price of PotashCorp common shares on Aug. 20, 2010. The company notes that since BHP’s unsolicited approach on Aug. 17, PotashCorp common shares have consistently traded above the offer price. PotashCorp believes that the performance of the common shares during this period is a strong indicator that the market believes that the BHP offer undervalues the common shares.
PotashCorp also noted that its financial advisors have each provided a written opinion to the board that the consideration being offered pursuant to the BHP Billiton offer was, as of the date of such opinions, inadequate, from a financial point of view, to shareholders (other than BHP and any of its affiliates). These assessments came from BofA Merrill Lynch, Goldman, Sachs & Co., and RBC Capital Markets.
Superior offers or other alternatives are expected to emerge, according to PotashCorp, which says it has been working to evaluate a range of strategic alternatives that may enhance shareholder value. PotashCorp said it has been approached by, and has initiated contact with, a number of third parties who have expressed an interest in considering alternative transactions. Discussions are being pursued with several of these third parties in order to generate value-enhancing alternatives.
PotashCorp also says the BHP offer is coercive and not a permitted bid under PotashCorp’s newly-enacted shareholder rights plan.
As it has in the past, PotashCorp stressed that greenfield potash investment economics are unattractive at current potash prices. As a result this makes PotashCorp, with its estimated 20 percent of world potash capacity and oncoming brownfield capacity, a particularly valuable asset. The company says BHP also does not adequately value PotashCorp’s stakes in ICL (14 percent), APC (28 percent), SQM (32 percent), and Sinofert (22 percent).
And with its growing brownfield capacity, PotashCorp says it has an unmatched ability to capture a disproportionate share of future growth opportunities. PotashCorp said that it is conceivable that if it were able to utilize its full operational capability of 17 million mt by 2015, it could generate in excess of $10 billion of EBITDA from potash sales alone.
PotashCorp also notes that the BHP offer is substantially inferior to control premiums for other marquee Canadian-based resource companies.
Vale out of the running
Brazil’s Vale S.A. on Aug. 23 said that rumors about a bid to acquire a fertilizer company or about negotiations with the purpose of making a bid to acquire a company are totally unfounded. Speculation had been circulating in the marketplace in recent days that Vale might be interested in making a bid on PotashCorp.
Speculation continues as to who else might be on the list of potential PotashCorp suitors, with Chinese firms, including Sinochem, prominently mentioned. Sinochem owns a majority in Sinofert Holdings Ltd., of which PotashCorp owns 22 percent. Chinese firms have been investing in start-up potash projects in The Congo and Ethiopia.
Sources note that China, which has a contentious relationship with BHP over iron ore sourcing, would not want the same for potash.
BHP philosophy of full-out production
Industry watchers continued to react to what a BHP acquisition of PotashCorp could mean for the industry. Many industry veterans give Bill Doyle and PotashCorp credit for taking the potash industry away from the days of full-out production and low or no profits. “The potash industry world-wide, was literally giving the stuff away,” said one industry veteran last week. “Not only did Doyle bring discipline to the market for potash, but in due course the producers of nitrogen and phosphate followed suit …. Much has been made about the 500 million dollar man, but nothing has crossed the airways about Bill’s restoring sanity worldwide in balancing supply and demand. He should have been rewarded!”
Another source said with the big build-up in brownfieldpotash reserves that prices may go lower anyway. He noted that after spending money for all those expansions, bankers and shareholders are going to expect those properties to be run, not remain idle. Potash producers, however, say potash demand is getting back on track and the extra potash will be needed.
Does BHP just want potash?
Sources last week continued to question whether BHP would keep PotashCorp’s nitrogen and phosphate businesses. “They like to dig holes,” said one source. “They do not appear to like chemical processes.” Others agreed, and BHP, in a conference call Aug. 25, continued to add fuel to this fire. Asked how BHP could add value to PotashCorp, BHP CEO and Chairman Marius Kloppers gave as an example how BHP has been trimming off its own non-core assets. “And what we’d like to do is continue to spend more and more of our effort on these big basin-type assets.”
He said BHP has the skills to operate these potash mines and their associated infrastructure at the same high levels of utilization that is customary for the rest of the BHP portfolio. He also said PotashCorp is effectively almost a single commodity company, and that BHP could run it more effectively than PotashCorp could.
Jansen expansion quite imminent
Kloppers said last week that the next phase for its own greenfield Jansen project in Saskatchewan is “quite imminent,” and that it is putting the refrigeration plant on the surface to freeze the shaft. Jansen is initially targeted for 8 million mt/y of potash.
Agrium speaks up for Canpotex
BHP has said it prefers marketing its own product, leading many to question whether it would exit Canpotex, the export arm of the Saskatchewan potash producers. Agrium on Aug. 26 stated its public support for Canpotex. It said as a one-third owner, Agrium fully supports this world-class global potash marketing and distribution organization. It said Canpotex has developed an enviable rapport and reputation with customers globally and utilizes its extensive and low cost infrastructure to the benefit of its members and customers alike. “Agrium, through Canpotex, will continue to play an integral role in helping to meet the ever growing demand for potash, which is required to increase food production globally,” stated Agrium President and CEO Mike Wilson.
BHP annual earnings up 116.5 percent
BHP Billiton Group, which comprises both BHP Billiton Ltd. and BHP Billiton Plc, last week reported a 116.5 percent increase in profits for the year ending June 30, 2010, compared to the prior year. Profit attributable to members was US$12.7 billion on sales of $52.8 billion, up from the prior year $5.9 billion on sales of $50.2 billion. In general, BHP said it remains cautious on the short-term outlook for the global economy, and that its commodity price outlook is mixed.
Insider trading alleged in BHP-PotashCorp deal
The U.S. Securities and Exchange Commission has charged two residents of Madrid, Spain, with insider trading and obtained an emergency court order to freeze their assets after they made nearly $1.1 million in illegal profits by trading in advance of last week’s public announcement of the BHP offer for PotashCorp.
The SEC alleges that Juan Jose Fernandez Garcia and Luis Martin Caro Sanchez purchased – on the basis of material, non-public information about the impending tender offer – hundreds of “out-of-the-money” call option contracts for stock in PotashCorp in the days leading up to the public announcement. Garcia is the head of a research arm at Banco Santander, S.A. – a Spanish banking group advising BHP on its bid. Garcia and Sanchez jointly spent a little more than $61,000 to purchase the contracts in U.S. brokerage accounts. Immediately after BHP’s offer was announced publicly on August 17, Garcia and Sanchez sold all of their options for illicit profits of nearly $1.1 million.
“Garcia and Sanchez tried to move off-shore highly suspicious trading profits made just a few days before. When abusive market practices occur, as in the case against Garcia and Sanchez, we will act swiftly and decisively to deny wrongdoers the profits of their illegal activity,” said Daniel Hawke, SEC Chief of the enforcement Division’s Market Abuse Unit.
