BHP goes walkabout in campaign to win over Potash shareholders

Published on Saturday 21 August 2010 23:09

BHP Billiton's board will go on a worldwide tour to meet shareholders this week as the mining giant tries to convince investors that its $39 billion (£25bn) bid for Canada's PotashCorp makes strategic sense.

With full-year results due on Wednesday, BHP's directors will be visiting stakeholders in markets where the group is listed, including the UK, United States, Australia and South Africa.

Analysts are pencilling in a pre-tax profit of $18.6bn, up from $11.6bn last year, on the back of $51bn in turnover, buoyed by rising raw material prices.

While BHP does not need formal shareholder approval to buy Potash - the world's biggest fertiliser company - it is expected to seek investors' blessing so as to avoid a repeat of Prudential's aborted bid for AIG's Asian business, which was thwarted by shareholders.

A spokesman for BHP yesterday declined to comment on the board's movements.

BHP formally launched its hostile $130-a-share takeover bid for Potash on Friday, with the takeover target advising its shareholders to ignore the bid until it could review the offer documents.

The firm said: "Potash's board will make a recommendation to shareholders regarding the offer, but in the meantime… advises shareholders not to take any action regarding the offer."

Potash's search for a "white knight" to trump BHP bid is likely to spark interest in China, where fertiliser is key to feeding the vast nation.

On Friday, one source said Potash was soliciting alternative bidders willing to pay more than BHP's bid - which the Canadian firm had rejected because it "grossly undervalued" the business - prompting BHP to take the bid direct to shareholders.

The source said Potash was confident alternative bids would emerge for the leader of a sector with huge growth potential.

Potash - a term covering various potassium-containing compounds - is a crucial ingredient in producing better crop yields, key to China as its growing middle class increases its food consumption.

Shrinking amounts of arable land worldwide and China's own limited domestic supply of potash increase its importance in the world's most populous nation.

Potash, based in the Canadian province of Saskatchewan, has declined to comment about possible counter-bidders.

Sinochem's listed fertiliser division Sinofert - in which Potash owns a 22 per cent stake - is the most logical candidate to lead a counter-offer, industry sources have said.

While Sinofert itself is small - its $3.8bn market value is less than a tenth of Potash's - its parent, Sinochem Group, is a huge state-owned firm. Sinochem's sales were $36bn last year.

A spokesman for Sinofert told one newspaper last week the firm would "pay close attention" to BHP's bid and added that the group "was interested in overseas potash investment opportunities". It is believed that Potash's advisers, Goldman Sachs, Bank of America Merrill Lynch and RBC Capital Markets, have since made approaches to the Chinese chemical and petroleum heavyweight.

As well as monitoring Potash's response to its bid, BHP is awaiting the formation of the next Australian government, following Saturday's general election - the closest in decades.

Like other miners, BHP stands to benefit from Tony Abbott, leader of the conservative Liberal Party, seizing power.