BHP $38.6-billion (U.S.) bid for Potash Corp. is being sharply criticized by a Chinese state-backed news agency, adding to mounting evidence that a Chinese company will attempt to scupper the hostile offer.
An editorial penned by wire service Xinhua, and published Thursday in Communist Party of China mouthpiece China Daily, said a successful BHP bid would further consolidate an already tightly controlled potash sector, harming consumers by driving up food prices.
"Once a monopoly is formed in the fertilizer industry, it will have negative impacts on all grain-producing countries in the world," Xinhua said.
The editorial calls BHP's takeover offer for Potash Corp., as well as the potential merger between two of Russia's largest potash producers, "an attempt to monopolize resources and control pricing to seek extortionate profits."
The newspaper item parrots concerns held by Chinese government officials and corporate executives over the prospect of BHP gaining control of the world's largest producer of the nutrient used to increase crop yields. China boasts the world's largest agricultural sector and is the top consumer of potash.
Chinese chemical firm Sinochem Group is trying to form a consortium of bidders to mount a rival bid to BHP's $130-per-share offer, according to investment banking sources. Canadian pension funds, including Alberta Investment Management Corp. (AIMCo), as well as foreign sovereign wealth funds have been contacted to join a rival bidding group.
Wendy Dobson, a professor at the University of Toronto's Rotman School of Management, said the Xinhua editorial likely emerged from discussions between Chinese industry officials and is a clear indication that China is pondering ways to enter the fight for the Saskatoon-based company.
"I would see it as part of the positioning for this reputed Sinochem offer," Ms. Dobson, who has published extensively on Chinese and Asian business and economic issues, said in an interview.
Potash Corp., which has rejected BHP's offer as too low, is a shareholder in Sinofert, a division of Sinochem.
Potash Corp. chief executive officer Bill Doyle has said BHP "will not be the only bidder," and that the company has been talking to "a number of third parties" about alternative deals.
China is believed to be at the top of that list given its financial clout, as well as the political desire to secure more of the resource. As China's 1.3 billion citizens become more affluent, diets are changing to include more meat, which boosts fertilizer demand.
But a bid from China faces many political obstacles in Canada, from both the federal and provincial governments. The Saskatchewan government has expressed concern about a state-owned company buying into Potash Corp. with a main motive of securing supply of the coveted crop nutrient.
Any bid would also need Ottawa's approval. The federal government will base its decision in part on what Saskatchewan wants, as well as Investment Canada Act requirements that a deal be of "net benefit" to Canada. To make a bid more palatable to Ottawa, China is hoping to reach out to Canadian pension funds to help fill out the investor roster in any potential counteroffer it makes.
"There are large pools of capital within the Canadian pension funds … they can potentially play a part in this of some kind," a source close to the situation said on Thursday.
AIMCo said last week it was approached by several parties urging it to help buttress a competing Chinese bid for Potash Corp., but that the economics didn't make sense for it to pursue the matter further.
Other bids may also surface that don't involve China. Rival mining and agricultural companies are also said to be mulling how they might be part of a bid to buy Potash Corp. which also has phosphate and nitrogen assets valued at up to $12-billion.
There has also been some speculation that companies in India, which also has a strong appetite for potash, may consider an investment.