BHP Billiton Ltd. has no immediate plans to sell the nitrogen and phosphate businesses held by Potash Corp. of Saskatchewan Inc. if its hostile takeover offer is successful, but analysts see it as a logical long-term move because of the company's philosophy of trying to dominate every business it enters.
Melbourne-based BHP, the world's largest mining company and a producer of everything from iron ore and coal to diamonds and copper, is attempting to add potash to the list through its $38.6-billion (U.S.) bid for Saskatoon-based Potash Corp.
Potash accounts for more than two-thirds of Potash Corp.'s business; the Saskatchewan company controls about one-fifth of global potash capacity through its five mines in Saskatchewan and one mine in New Brunswick. BHP is also making plans to build its own potash mine in Saskatchewan, which it has vowed to continue regardless of the result of the takeover fight.
BHP has said for years that in the fertilizer business, it is mainly interested in potash, and not nitrogen or phosphate, analysts say. Nitrogen and phosphate, like potash, are key nutrients used in the making of fertilizer for crops.
BHP said Monday it had no immediate plans to divest of the nitrogen and phosphate businesses, which analysts have valued at up to $12-billion.
"At this stage BHP Billiton has no plans to sell any [Potash Corp.]assets," a company spokesman said. "Our offer is for the whole company, including the phosphate and nitrogen businesses."
After meeting with BHP executives last week to discuss the Potash Corp. bid and its latest earnings, analysts came away with the impression the company was planning to divest of the secondary nitrogen and phosphate assets down the road.
"BHP said that 70 per cent of the value is in the potash assets and that over time it would probably look to possibly divest the nitrogen and perhaps the phosphates business," Soleil Securities analyst Mark Gulley said in a note to clients following a meeting with BHP's chief commercial officer, Alberto Calderon, who is also head of mergers and acquisitions.
National Bank Financial believes BHP will not move quickly to sell the non-potash assets, "although such a move may be contemplated over the long term."
"We believe that given the focus on potash assets, BHP may not be placing similar premiums on the nitrogen and phosphate segments, and the equity stakes," National Bank Financial analyst Hari Sambasivam said in a report.
Since making the $130-a-share hostile offer, BHP has consistently that it did not need to sell off assets to make the bid work financially. However, the company has also said it would review the entire business if its Potash Corp. takeover was successful with a constant focus on big-producing assets.
In a conference call last week, BHP chief executive officer Marius Kloppers pointed to the phosphate and nitrogen assets in Potash Corp. as a way to further diversify its operations. He also said the company has been working to simplify the business, and trim non-core assets to focus on "big basin-type assets."
Calgary-based Agrium Inc. said it would be interested in some of Potash Corp.'s assets if they came on the market.
"In terms of nitrogen, phosphate or even potash assets we have always said we are interested in growing all parts of our business, including any available fertilizer production facilities that may be available for sale globally," Agrium chief executive officer Mike Wilson told The Globe and Mail.
Potash Corp. is the third-largest producer of phosphates, with 4 per cent of world phosphoric acid production, and also the third largest nitrogen producer by capacity, with about 2 per cent of the world's ammonia production, according to regulatory documents.
Potash Corp. has rejected BHP's unsolicited offer as too low, while BHP maintains it is "full and fair." BHP executives are in North America for the next two weeks to promote the deal to shareholders.
Potash Corp.'s holdings
22-per-cent stake in Sinofert Holdings Ltd., a Chinese fertilizer distributor
14-per-cent stake in Israel Chemicals Ltd., the world's sixth-largest producer of potash
28-per-cent stake in Jordan-based Arab Potash Co.
The equivalent of 32 per cent of Sociedad Quimica y Minera, a Chilean producer of specialty crop nutrients such as lithium and iodine.