Potash Corp. is in talks with a handful of Chinese firms and other international companies looking to trump BHP $38.6-billion (U.S.) hostile takeover bid for the fertilizer giant.
The Saskatoon-based company is discussing a range of investment options that would include more than one company stepping forward with a joint bid to rival BHP's $130-per-share offer.
Anglo-Australian firm Rio Tinto is said to be considering a bid alongside a Chinese player as relations between the two sides strengthen, according to sources.
Brazil's Vale SA, which had discussed a potential bid with Potash Corp. last week, appears to have walked away from talks, for now.
There are a number of people within Vale who want to do this. The issue is the numbers. To get into an auction with BHP is daunting. This could get very expensive.
Other parties believed to be looking at a partnering in a bid include such agricultural firms as Minnesota-based Mosaic Co. and Calgary-based Agrium Inc. - who are partners with Potash Corp. in the global potash marketing arm Canpotex - as well as Cargill Inc. and Monsanto Co. in the United States.
Officials at Rio Tinto, Mosaic and Agrium declined to comment on possible bids, while officials at Cargill and Monsanto could not be reached.
On Monday, Potash Corp. officially rejected BHP's bid and confirmed it was considering a "range of strategic alternatives."
The company is the world's biggest producer of potash, a crop nutrient prized by countries - especially emerging markets - for its ability to boost crop yields. A takeover would be one of the biggest in Canadian history.
Potash Corp. said in regulatory filings that it has been "solicited by and has initiated contact with a number of third parties who have expressed an interest in considering alternative transactions."
Potash Corp. said it "expects to see an alternative proposal" and has set up an electronic data room to provide potential bidders access to confidential information about the company.
"We have a lot of interested parties that have popped their head up here since the announcement last week and it's a broad universe of companies," chief executive officer Bill Doyle said in an interview Monday, refusing to provide specific information. "You should not limit your imagination as to what type of companies they would be. … Not just fertilizer companies."
According to an industry source familiar with the situation, Potash and its advisers are making themselves "very available," to anyone and everyone who could mount a competing bid to BHP's hostile offer.
But the list is short, given the $40-billion-plus price tag it would take to outbid BHP.
Timing is also a challenge for Potash Corp., given that BHP's bid has caught the two main industry competitors - Rio Tinto and Vale - at a difficult time to mount a competing bid.
Vale and Rio are both keenly interested in Potash Corp.'s assets and each has, according to sources, acknowledged to Potash's advisers, an interest in a potential deal.
However, Vale is constrained by an October federal election in Brazil. The Brazilian government holds control of Vale through state-owned investment funds and through its so-called "golden share," which gives the government a say in any major changes at the company. With an election looming, Vale will be hard pressed to launch the largest takeover offer in its history for a foreign company.
"There are a number of people within Vale who want to do this. The issue is the numbers. To get into an auction with BHP is daunting. This could get very expensive. It will be dilutive [to profits]for a year or two … and then you have the whole political thing," said a source familiar with Vale's position.
Vale issued a statement Monday, saying "that rumours about a bid to acquire a fertilizer company or about negotiations with the purpose of making a bid to acquire such company are totally unfounded."
For Rio Tinto, the timing is also difficult as it digests its top-of-the-market acquisition of Montreal's Alcan Inc. in 2007, which saddled it with almost $40-billion in debt, just ahead of the global financial crisis. As a result, it may be unwilling to make another enormous bet on a Canadian acquisition.
However, for both Rio Tinto and Vale, as well as rival potash producer Mosaic, the most likely scenario that would allow entry into the contest is in partnership with a deep-pocketed Chinese company.
The Canadian government would likely block an outright acquisition of Potash Corp. by a state-controlled Chinese company on security concerns. And a minority investment in Potash Corp. alone by a firm such as China Investment Corp. (CIC) might not be enough to fend off BHP's offer.
"The better thing for the Chinese to do would be to find a strategic partner and fund that partner to take the whole thing out. But it will be hard," the industry source said.
Government officials in both China and Brazil are understood to have held discussions regarding the Potash Corp. situation aimed at determining how companies from both countries could become involved in a bid for the Canadian firm, the source said.
Chinese chemical and fertilizer giant Sinochem Group is among the interested parties. It, along with state-controlled oil giant China National Offshore Oil Corp., are considered the most likely Chinese companies to front a potential bid.
CIC, which has already invested in Canada's coal mining, base metals and oil sands sectors, could also help bankroll a competing offer with a strategic partner.
If Rio Tinto decides to enter the fray, it could team up with its largest shareholder, China Aluminum Corp., another major state-controlled Chinese company. The two companies recently paired in a joint venture to develop an iron ore project controlled by Rio in Guinea.