K+S rejects $8.7-billion takeover bid by Potash Corp.

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Germany's K+S AG has rejected an $8.7-billion (U.S.) bid from Potash Corp. of Saskatchewan, saying the offer is too low and "completely disregards" the value of its large potash project in Saskatchewan.

Potash Corp., the world's biggest fertilizer producer, is increasingly facing more competition in Canada and abroad. Acquiring K+S would give the Canadian company control over about 30 per cent of the potash market as well as K+S's Legacy project in the prairies, which is to start production next year.

K+S said Potash Corp.'s offer of €41 ($57 Canadian) a share shortchanges its entire business, which includes potash operations in Europe and its position as the world's largest supplier of salt products.

In addition to the price, K+S said its directors are not convinced Potash Corp. would continue operating the German miner's fertilizer and salt businesses in their current form or protect the interests of their 14,000 employees.

"Despite repeated requests to address this question, Potash Corp.'s answers have remained vague," Norbert Steiner, K+S's chief executive, said in a statement.

The rejection could lead Potash Corp. to go hostile and take its offer directly to K+S's shareholders, which the Canadian company has indicated it may do pending a more thorough examination of K+S's operations.

But K+S said it is not about to open up its books to Potash Corp. any time soon.

"You should not forget we are talking about a competitor," K+S's chief financial officer Burkhard Lohr said on a webcast with analysts. "It is tricky to open books and strategies to a competitor," he said.

K+S believes Potash Corp. wants to make the acquisition so that it can cut jobs, shutter some of K+S's higher-cost operations and run its under-utilized mines in Saskatchewan at full tilt.

"In a way, K+S is the ideal problem solver for Potash Corp.," Mr. Steiner said in a posting on K+S's web site. "Potash Corp. sites in Canada produce at significantly lower costs than our German sites. But they are under-utilized. Obviously it makes ultimately little sense for Potash Corp. to operate our German sites at the current level," he said.

K+S's Legacy project in Saskatchewan is expected to produce about three million tonnes a year, nearly the same size as some of Potash Corp.'s mines in the province. Legacy is expected to exacerbate soft prices and contribute to the glut of potash in the market.

K+S said Legacy is worth at least €21 ($29) per share. When asked what would be a fair offer for the entire company, Mr. Lohr said he was "not willing to give a number."

Mr. Lohr reiterated that K+S would not join Canpotex, the joint venture of Potash Corp. and two North American firms that sells potash outside of the continent.

The European miner plans to sell its Canadian potash to Asia and South America, two of Canpotex's biggest markets.

"We see a good chance to place the material into the market," Mr. Steiner said in an interview with The Globe and Mail. "Customers come up to us and say, why don't you have more material available right now? They are waiting for … Legacy. This is something that makes us optimistic," he said.

Canpotex and its Russian-Belarussian counterpart used to control 70 per cent of the potash market. Together they exerted enormous influence over prices. But Canpotex lost some of its power when Russia's Uralkali killed the Russia-Belarus potash cartel.

Potash Corp. has never cut prices to gain market share, a strategy its new CEO Jochen Tilk has said will not change.

Potash Corp. did not respond to a request for comment.

Potash Corp.'s informal offer represents a 40-per-cent premium to K+S's share price before the bid was made public last week. K+S's stock fell 2 per cent to €37.02 ($51.48) Thursday after it rejected the bid.

Goldman Sachs is advising K+S. Goldman advised Potash Corp. when it fended off a multi-billion-dollar hostile bid from BHP Billiton in 2010.