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A front loader filled with potash in the Mosaic's Colonsay mine in Saskatchewan. (DAVID STOBBE/Reuters)
A front loader filled with potash in the Mosaic's Colonsay mine in Saskatchewan. (DAVID STOBBE/Reuters)

Canpotex fate spurs closer look at Potash Corp. takeover Add to ...

Saskatchewan is stepping up its scrutiny of BHP hostile $38.6-billion (U.S.) bid for Potash Corp. amid the Australian miner's plan to pull out of the powerful group that markets the province's potash around the world.

The potential breakup of Canpotex also has its other members, Agrium and Mosaic scrambling to determine how they would compete effectively without Potash Corp., the world's biggest potash producer, which represents more than half of the group's sales volumes.

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Potential rival bidders for Potash Corp. are also said to be considering the possible collapse of Canpotex as a strategy in their own decision over whether to put forward a competing bid, sources say. For instance, a Chinese firm may be eager to make a competing offer, possibly alongside another fertilizer firm, to ward off BHP's potential control of the market.

Saskatchewan politicians are seeking independent advice on how the BHP bid will impact the province, and have approached both financial and political advisers to do the work.

"We're concerned about the future of Canpotex," Saskatchewan Premier Brad Wall told reporters last week. "It's a strength of Saskatchewan that these companies work together to market the potash and we want to find out what the implications of all this are for Canpotex ... We want to make sure we have the best advice."

The fate of Canpotex is one of several complex issues BHP faces in its bid for Saskatoon-based Potash Corp., alongside rival offers and a possible vote of its own shareholders. Such a vote would be triggered if the value of its $130 per share offer were sweetened to more than about $154, opening the deal to possible opposition from some BHP shareholders.

Canpotex represents Potash Corp., Mosaic and Agrium for all potash from Saskatchewan mines sold outside of North America, which represents about one-third of global capacity. In the event of a takeover of Potash Corp., BHP said it intends to use its own marketing capabilities once existing agreements run out. That would make BHP one of the biggest single marketers of the coveted crop nutrient, which is in high demand amid concerns of food shortages as the global population continues to swell.

The most immediate impact of a Canpotex breakup is expected to be lower revenues for Saskatchewan, which earns royalties based on a calculation of volumes and price.

"Government potash tax revenues typically rise more from price, rather than volume increases," BMO Nesbitt Burns fertilizer analyst Joel Jackson said.

For the province, the concern is that if BHP overproduces, "that could have a detrimental effect on price," Saskatchewan Energy Minister Bill Boyd said in an interview this week.

BHP says its acquisition of Potash would bring economic benefits and has promised to comply with a Saskatchewan law requiring the company's head office to remain in the province. Canada's federal government said it is reviewing the takeover to assess its benefits for the country.

Mr. Boyd said BHP officials told his government this week that the company hasn't yet made an official decision on whether to pull out of Canpotex. BHP said in regulatory filings on Friday that it plans to work toward an agreement with Canpotex members that "ultimately permits BHP Billiton to market its potash independently."

Graham Kerr, president of BHP's potash operations, said if the company's bid is successful it will study the Canpotex agreement more closely.

"I am not close enough to the insights of how Canpotex operates to say if it's a good, bad or indifferent organization. I recognize a lot of people think about it favourably," Mr. Kerr said in a recent interview. "I think at the same time, our marketing model works very well. Longer term we do believe in marketing our own product. We think we do it well."

Potash Corp. CEO Bill Doyle, who is chairman of Canpotex, said it would be "a mistake" if BHP broke up Canpotex.

"When you talk about these things, maintaining that you are going to withdraw from Canpotex and run full out no matter what the market requires … that's not going to do much for the revenue of the province and I think the province has a right to be concerned," Mr. Doyle said.

Canpotex sells eight to nine million tonnes of potash each year. Potash Corp. accounts for 54 per cent of Canpotex's volumes, followed by 37 per cent from Mosaic and 9 per cent from Agrium.

"Canpotex has demonstrated its value to our customers and to the communities in which we operate and we believe it's an organization that is going to succeed and thrive," said Mosaic chief executive officer Jim Prokopanko in an e-mail to The Globe and Mail.

A spokesman for Agrium declined to comment.

With files from reporter Boyd Erman

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ROLE OF SHAREHOLDERS

If a bidding war erupts for Potash Corp., BHP could face a vote by its own shareholders if its offer rises by more than 22 per cent, according to U.K. listing requirements.

A vote would have to be called if the takeover price surpasses 25 per cent of BHP's total market capitalization, which BMO Nesbitt Burns estimates would be in a range of $154 to $159 per share, or about $47-billion (U.S.).

"It is highly likely that BHP shareholders would support its board, but the company may prefer not to take the risk," said BMO Capital Markets analyst Tony Robson.

Brenda Bouw

 
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