PotashCorp weighs options over bid battle

The potash industry has substantial barriers to entry and BHP Billiton set another hurdle when it launched a hostile takeover for PotashCorp at $39bn. At that price, few mining or fertiliser rivals could compete in a bid war.

Brazil’s Vale, the iron ore miner expanding into fertilisers, and Sinofert, the Chinese state-controlled fertiliser maker, appear to be the only obvious candidates with enough financial muscle to launch a counter bid, analysts say.

However, the industry is braced for a long campaign, believing that PotashCorp will try to remain independent. Vincent Andrews, chemicals analyst at Morgan Stanley in New York, says that PotashCorp could pursue “alternative strategies such as M&A or joint ventures”.

PotashCorp has hinted that it might take that route, saying that the shareholder rights plan – known as a poison pill – announced on Tuesday, would allow it to have “sufficient time to explore and develop alternatives ...  including competing transactions that might emerge”.

PotashCorp already owns a 22 per cent stake in Sinofert and could work with its owner Sinochem – which holds 53 per cent – on a deal, analysts say.

In addition, PotashCorp could call Beijing’s sovereign wealth fund, China Investment Corporation, which is very active in commodities. China is one of the largest clients of PotashCorp.

Rio Tinto, the miner that BHP Billiton tried to buy two years ago, could also muster an offer. But few analysts believe it has the appetite for a purchase while it is still digesting its acquisition of Alcan, the Canadian aluminium group. Peter Davey, a mining analyst at Ambrian, says that Rio Tinto could afford to “pay up to approximately $47bn” for PotashCorp.

If neither Vale, Sinofert nor Rio responds, analysts believe PotashCorp could deepen its relationships with other leading fertiliser producers. But there are doubts about whether that could stop BHP Billiton. In any case, share prices of most fertiliser companies have surged this week.

PotashCorp owns a 32 per cent stake in Sociedad Química y Minera, a Chile-based group and one of the world’s top fertiliser producers. It also owns a 14 per cent stake in Israel Chemicals. The other – and more unlikely – route is a deal with US-based Mosaic or Agrium of Canada.