As international fertilizer companies go, Potash Corp. is the jewel. It is the world's largest producer of potash, a key ingredient in fertilizer, making it the best-positioned to cash in on rising global food demand. Anglo-Australian mining colossus BHP Billiton Ltd. has put Potash Corp. in play with a hostile $130 (U.S.) per share offer worth about $39-billion. But it is highly unlikely the unsolicited offer represents the end of the story. Assets such as those controlled by Potash Corp. are rarely put on the auction block, which means that the world's largest mining and chemical companies will be considering bids of their own. Here are four scenarios.
Potential buyer: Vale SA of Brazil
The lure: A global resource champion from Brazil, Vale has both the ambition and the economic firepower to wade into a battle for Potash Corp. The world's largest iron ore producer would love to add the title of biggest potash miner to its CV. Vale is already developing potash assets in Brazil and in Saskatchewan, but a successful bid for Potash Corp. would provide a faster route to the top of the heap.
The hitch: Vale's other major foray into Canada, the $19.4-billion acquisition of nickel giant Inco Ltd., hasn't gone swimmingly. Its flagship operations in Sudbury were hobbled by a bitter year-long strike that ended last month. Vale has faced criticism and scrutiny for Canadian layoffs and mine closures after promising to maintain employment levels. The Brazilian firm came a close second to Rio Tinto in the frenzied bidding for Alcan Inc., a loss that in retrospect looked to be a major victory. Chief executive officer Roger Agnelli may not want to tempt fate again.
Potential buyer: China Inc.
The lure: China is the world's largest buyer of potash, accounting for about 30 per cent of global consumption. With a massive population that is consuming more meat - which boosts the need for fertilizer to produce feed for livestock - China is desperate to secure a long-term supply of potash. It doesn't want to be in the same situation with potash as it is for iron ore - that is, at the mercy of an increasingly powerful oligopoly. Any one of a myriad of deep pocketed state-owned enterprises could front a bid, including Sinochem Group, the parent firm to China's largest potash distributor and producer Sinofert. Sovereign wealth fund China Investment Corp., which has taken minority stakes in other Canadian resource assets and companies, could also get involved. CIC could take a minority stake in Potash while helping bankroll a bid from another mining firm. For a guaranteed supply, China could also make a direct minority investment in Potash to help it fend off BHP.
The hitch: Ottawa and the government of Saskatchewan could reject a bid from a Chinese firm for full control of Potash Corp., on concerns over national security. China has tread carefully in Canada's resource sector since it was rebuffed by the government in an attempt to buy Falconbridge in 2004. A Chinese bid would likely be for a minority position in Potash, with a partner taking the rest. The auction process might also move too fast for Chinese companies, which, though improving, are notoriously slow on M&A deals.
The lure: Besting BHP for control of Potash Corp. would be a sweet victory for Rio and its uncharismatic CEO, Tom Albanese. BHP almost swallowed up Rio in 2007 after the British-based company saddled itself with a crushing debt load by buying Alcan. The financial crisis, however, put an end to BHP's merger attempt. Potash Corp.'s world class assets would put Rio back near the top of the mining world.
The hitch: Rio is still smarting from its last visit to Canada. The debt it incurred from buying Alcan at the top of the market nearly brought the once-mighty miner to its knees. Mr. Albanese likely hasn't forgotten the M&A lesson he got from his Alcan counterpart Dick Evans. He'll be wary of getting into a high-stakes bidding war with BHP.
Potential buyer: Teck Resources
The lure: It is a long shot, but a deal for Potash Corp. would finally make Vancouver-based Teck the global mining champion it has always wanted to be. It is probably the best hope for Potash to remain in Canadian hands. Teck couldn't afford to bid for Potash on its own, but might be able to team with a partner in a bid, perhaps with its 17-per-cent shareholder China Investment Corp.
The hitch: Many Teck shareholders would hit the roof if it launched a bid, considering how close to the edge the company was pushed with its own pricey acquisition of Fording Coal. CEO Don Lindsay masterminded Teck's recent turnaround, but also got the company into its debt mess in the first place. He's probably still on too short a leash in the deal-making department to seriously consider a big league play for Potash.