Bill Doyle, chief executive of Potash is wasting no time in trying to give his company's share price a boost.
The company announced that it will buy back up to $2-billion (U.S.) worth of its own shares over the next year - a signal that it believes the shares are undervalued. The buybacks represent about 4.9 per cent of the company's outstanding shares.
The question of value was made clear by Mr. Doyle during Potash Corp.'s recent efforts to struggle free from a hostile takeover offer by Australia's BHP Billiton Ltd., since withdrawn. That offer valued the fertilizer producer at $130 a share, but Mr. Doyle contended in October that the company's value "far exceeds $170 per share."
The shares jumped to a high of about $153 in August, when investors were anticipating a higher bid from BHP Billiton or a richer offer from another company. Since then, they have slid about 11 per cent.
Now, with Ottawa essentially telling prospective suitors that Potash Corp. is out of bounds as a takeover target, the pressure is on Mr. Doyle to make good on his valuation estimate. He has his work cut out for him. There is no longer a takeover premium attached to the stock. As well, the share price is at the whim of crop yields and fertilizer demand, not to mention the health of the global economy.
Even though the stock market's response to the share buyback plan was muted on Wednesday, analysts believe that the plan is a step in the right direction. Brian MacArthur, an analyst at UBS, argued that a buyback at the current share price would drive per-share earnings higher, noting that the gains would more than offset the increase in interest charges.
He maintained a "buy" recommendation on the stock, along with a 12-month price target of $165.
However, Fai Lee, an analyst at RBC Dominion Securities, bumped up his price target to $170 from $150. He argued that Potash Corp. has lagged its fertilizer peer group, which has seen strong gains with improving crop and fertilizer prices.
"We believe this was likely due to investor uncertainty regarding the outcome of BHP Billiton's bid," Mr. Lee said in a note this week. "Given BHP Billiton's announcement on November 14 that it has withdrawn its bid, we expect Potash Corp.'s valuation to better reflect improving fertilizer and crop fundamentals."