Potash Corp.'s POT-T best hope for a rival offer to BHP Billiton BHP-N $38.6-billion (U.S) takeover bid faces a potential obstacle in the provincial government, which says it’s worried that a state-controlled buyer would drive down the value of its coveted resource.
The Saskatchewan government signalled Wednesday that it is unlikely to support a takeover of the Saskatoon-based company by a sovereign wealth fund or other state-owned firm from China or other large potash-buying nation. The fear is that the new owner’s primary motive – to supply food and fertilizer for their populations – would conflict with the province’s goal of supporting its people through higher potash prices.
“It would seem to us at first glance that their interest and the interest of taxpayers of Saskatchewan may not be aligned,” Saskatchewan Energy Minister Bill Boyd said in an interview.
The provincial government is flexing its muscle in the Potash Corp. takeover battle, knowing that its support for any bid is key. While the province doesn’t have the power to stop a bid, it can influence Ottawa’s decision on whether or not to approve a takeover. That’s why BHP officials immediately traveled to Saskatchewan after launching their bid last month, in the hope of easing concerns about a foreign takeover and its impact on jobs and investment in the province.
So far, Potash Corp. has rejected BHP’s $130 (U.S.) per share offer as too low and said it’s talking to other companies interested in making a competing offer. Chinese state-owned companies are considered the frontrunners in making a possible rival bid, given their financial clout and need to increase crop yields to feed a growing population as farm land shrinks to make way for increased urbanization. China is already the world’s largest potash user, accounting for about one-fifth of global demand.
A Potash Corp.mine in Lanigan, Sask. Potash isn't a rare substance, but industry observers say its global distribution gives it potential for long-term profitability.— Handout/ Potash Corp.
For Saskatchewan, the concern is that a state-run owner would immediately try to increase production and supplies to maximum levels, which would then drive down prices, and in turn mean lower revenues for the province, and possibly lost jobs.
“Whether it’s a China or India or anywhere else that might involve sovereign funds, it’s much different than private business interests or publicly-traded companies,” Mr. Boyd said. “We believe that under those circumstances, obviously their best interest is to buy at the lowest possible price they can, to set up a supply chain for their country. That is very different than a publicly traded or private company looking to make a profit.
“Regardless of who might enter this arena … we will want to ensure that there is a good return on the potash resource we are blessed with in this province.”
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The province is hiring an independent consultant to review the economic impact of a Potash Corp. takeover, the results of which are expected in the coming weeks.
The review will help the province decide if it needs to change legislation to increase revenues from the mining sector through taxation, royalties or permitting. It could also bind any buyer to the Canpotex marketing agency, which is an issue at play in the province’s support of BHP’s bid. Canpotex sells potash produced in Saskatchewan by Potash Corp., Calgary-based Agrium Inc. and Minnesota-based Mosaic Co., to markets outside North America.
