Potash Corp. of Saskatchewan (NYSE:POT), the world's largest fertilize producer, is trying to form a group that will be led by Chinese investors to support a management buyout of the Canadian fertilizer giant in an effort to thwart a hostile $38.6 billion takeover offer from BHP Billiton (NYSE:BHP), the world's largest mining company.
Canada's Globe and Mail newspaper, citing unidentified sources, said the Chinese group could include capital from a Chinese resource company or investment fund and investments from international sovereign wealth funds.
Since BHP's (NYSE:BHP) for Potash (NYSE:POT) became public, analysts and investors have speculated a Chinese suitor or suitors would emerge to challenge that bid. Cnooc (NYSE:CEO), China's largest offshore oil driller, and Sinochem (SHA:600500), the country's largest chemicals trader, were specifically mentioned in press reports as possible bidders for Potash though no official offer from either Chinese firm has been made public.
Separately, the Chinese magazine Caijing withdrew a story yesterday that included an interview with a Sinochem (SHA:600500) executive who said a bid for Potash (NYSE:POT) would not be a good idea for the Chinese chemicals firm. Caijing gave no reason for withdrawing the piece.
Bloomberg News published a piece citing Caijing that says Sinochem (SHA:600500) Vice Presiden Han Gensheng said even a $10 billion bid for Potash (NYSE:POT) would be too large.
From today's the Globe and Mail:
Morning Meeting: Potash MBO comes with big deal risk
Potash Corp. of Saskatchewan (POT-N148.971.841.25%) is considering a management-led buyout to top BHP Billiton's (BHP-N73.470.050.07%) $130 (U.S.) a share hostile bid.
The bid would likely be structured as a consortium, with current managers such as chief executive officer Bill Doyle pitching in and sticking around to provide the management expertise, and other investors such as sovereign wealth funds and, potentially Canadian pension funds, putting in some cash. Further financing could come from markets and from selling assets.
For shareholders of Potash Corp. looking out for a higher bid, this report isn't unambiguously good news. The fact that an idea with so many moving parts is being looked at as potentially Plan A on the defence side illustrates just how hard it is to drum up credible competition to the almost $40-billion bid that BHP Billiton has put on the table.
That puts more pressure on China, if it is truly intent on stopping BHP, to perhaps consider a landmark offer for a majority of Potash Corp. While it would face intense regulatory scrutiny, the deal risk from having to get approval in Ottawa might well be less than on an MBO consortium bid with so many parties involved. That's potentially even more of a consideration if BHP is topped, then comes back with a higher bid of its own. Getting four or five parties backing an MBO to agree on another bump would be a case of herding cats.