Tuesday, September 7, 2010

"How likely is a Chinese bid for Potash Corp?" as Government May Order Firms to Bid (POT)

UPDATE below.
Original Post:
The stock is up $1.31 at $149.81 with the S&P 500 down 8/10's percent.
From Reuters via Mineweb:
While the rationale for such a bid is clear, the politics and a $40bn price tag mean the country's options are somewhat limited

China is clearly worried that top global miner BHP Billiton (BHP.AX: Quote) may be successful in its $39 billion bid for the world's biggest fertiliser maker Potash Corp (POT.TO: Quote).
The rationale for China to derail the deal is clear, with the world's most populous nation wanting to secure reasonably priced supplies of the key crop nutrient to feed its people with a shrinking supply of arable land.
But despite its ambitions and financial firepower, a price tag above $40 billion and political sensitivities in Canada limit China's options.

Probability: Mostly likely
Whatever action the country takes is most likely to involve state-run Sinochem Corp, parent of China's largest fertiliser distributor Sinofert Holdings (0297.HK: Quote).

To avoid running into Canadian regulatory obstacles, Sinochem will possibly act alone, or it could link up with a Chinese partner, or with non-Chinese partners to grab a blocking stake in Potash Corp (POT.N: Quote).
The Canadian government has not raised issues against foreign stakes in companies as long as they are not controlling stakes, making this the most viable option.

China used this tactic in 2008 in an attempt to thwart BHP's (BLT.L: Quote) bid for Rio Tinto (RIO.AX: Quote)(RIO.L: Quote), a deal that would have brought together the world's second- and third-largest iron ore miners and the biggest suppliers to China.

In a share raid, Chinalco teamed up with U.S. aluminium producer Alcoa Inc (AA.N: Quote) to pick up a 9 percent stake in Rio Tinto for 60 pounds a share -- a hefty 21 percent premium to Rio's share price at the time and close to double its current price -- to become the miner's biggest single shareholder....MORE
From Chinavestor:
Government may order Chinese firms to bid for Potash

Beijing appears to be worried that BHP Billiton (NYSE:BHP), the world's largest mining company, will eventually be successful in its effort to acquire Potash Corp. of Saskatchewan (NYSE:POT), the largest maker of its namesake fertilizer, a move that could result in pricing practices that less than desirable to China.

As a result, the Chinese government is reportedly asking China Investment Corp., the country's sovereign wealth fund, and Sinochem International (SHA:600500), the country's largest chemicals trader, to make a joint bid for the Canadian fertilizer giant. China is one of the world's largest buyers of potash fertilizer.

Speculation has swirled that a Chinese buyer or a group of buyers would step in to make a competing bid to BHP's (NYSE:BHP) $38.6 billion offer for Potash (NYSE:POT). Potash (NYSE:POT) has rejected that offer and BHP (NYSE:BHP) has taken it hostile, but no official offer from China has emerged as of yet.

Last week, press reports said that an unidentified Chinese suitor approached a Canadian pension fund manager about making an offer for Potash (NYSE:POT), but that overture was rebuffed. Analysts have said the Canadian government is concerned about letting Potash (NYSE:POT) fall into foreign hands and that could be a stumbling block to any suitor.
"Sinochem Approaches Temasek on Potash Bid" and "Potash’s CEO Says BHP Unlikely to Be the Only Bidder" (POT)