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Potash shares wobble on uncertainty over bid

A mill manager a pile of processed potash at a mine storage facility in Colonsay, Saskatchewan, on Sept. 24, 2009.

DAVID STOBBE/Reuters

Potash Corp. of Saskatchewan Inc. gave up early gains in trading Tuesday as investors reacted to conflicting signs about the future of BHP Billiton Ltd.'s hostile takeover.

Investment Canada officials have decided that a proposed takeover by BHP Billiton meets a narrow "net benefit" test, meaning it would have a positive economic impact on the country.

But Investment Canada has not made a public pronouncement yet on the hostile takeover bid, and Industry Minister Tony Clement said no final decision has been made. However, one portfolio manager said traders were reacting to rumours that BHP may walk away from the deal rather than agree to onerous conditions imposed by Ottawa - rumours he discounted.

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It's now in the hands of the Harper government to decide on a deal that could trigger a fierce political battle with Saskatchewan Premier Brad Wall.

In consultation with Prime Minister Stephen Harper, Mr. Clement must give final verdict on whether it is Canada's national interest to lose domestic control of a key global player in a strategic agricultural commodity.

In a statement issued Tuesday. Mr. Clement's office insisted that no ruling has been made on the review, and that he alone will make the decision, though multiple sources close to government say Mr. Harper will certainly have the final word. The government has until end of day Wednesday to rule on the acquisition.

If approved, BHP is preparing to sweeten its $130 a share offer to win shareholder approval, with some analysts estimating a successful offer would have to top $155 a share. If rejected, the Potash Corp. would likely have a short-term retreat, but analysts expect it to recover quickly, given the booming markets for fertilizers.

Given Canada's history of approving foreign takeovers, the perception in the market was that the deal would sail through the government review, then BHP would have to deal with shareholders who are unhappy with the current offer. However, Premier Wall's adamant rejection of the BHP acquisition has raised the political stakes.

In a note Tuesday, UBS analysts said the bid has become increasingly politicized, "making the outcome less certain."

Should it clear the Investment Canada hurdle, the UBS analysts expect BHP to increase the offer to $165 (U.S.) a share.

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