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Aug 17, 2010

BHP Billiton takes offer direct to PotashCorp’s shareholders

Move follows announcement of poison pill defense by the fertilizer company

BHP Billiton has taken its offer for Potash Corporation of Saskatchewan (PotashCorp) directly to shareholders by launching a hostile bid.

The mining company has offered $130 per share in an all-cash offer, valuing the Canadian fertilizer producer at roughly $40 bn.

BHP Billiton followed up the announcement of its offer with a conference call later in the day. The call – hosted by vice president of IR Andre Liebenberg – was timed so interested parties could listen in from Australia, Europe and the US.

‘We believe that our offer is compelling to both PotashCorp and BHP Billiton shareholders, and will also result in significant benefits to Canada, Saskatchewan, New Brunswick, PotashCorp’s employees, customers and other key stakeholders,’ said Jac Nasser, BHP Billiton’s chairman, on the call.

The bid follows Tuesday’s rejection by the PotashCorp board of a $40 bn unsolicited offer from BHP Billiton. In its response, PotashCorp called the bid ‘grossly inadequate’.

PotashCorp has also adopted a new shareholder rights plan that will make it harder for any potential acquirer to gain control of the company, although market commentators do not think this will be enough to stop BHP Billiton.

The mood among investors and analysts is that BHP Billiton will need to improve terms to get the deal done. On Tuesday, following the revelation of the unsolicited offer, PotashCorp’s shares in New York rose around 25 percent, implying investors expect BHP Billiton to come back with a raised offer.

‘[M]arket commentators suggest the company could bid up to $160 a share before it becomes dilutive, although this would depend on the cost of funds and the level of synergies available,’ says stockbroker Killik & Co in a note Wednesday. ‘We therefore expect the group to return at some point with an increased offer.’

BHP Billiton’s job now is to persuade PotashCorp shareholders and Canadian regulators that the deal should go through. In its offer announcement, the mining company said it would formally begin the offer through a newspaper campaign beginning on August 20. The potential acquirer stressed in its announcement that the deal would be good for Canada in terms of jobs.

PotashCorp’s fight back will be supported by the company’s senior director of IR, Denita Stann, a CIRI board member who joined PotashCorp in 2006.