Home > Mergers & Acquisitions > Sinochem in push to foil BHP’s Potash plan

Sinochem in push to foil BHP’s Potash plan

September 9, 2010

“Sinochem, the Chinese state-owned chemicals group, is trying to recruit at least one sovereign wealth fund and a Canadian pension fund for a consortium to block BHP Billiton’s $39bn hostile takeover of PotashCorp of Canada.

People familiar with the discussions said Temasek, the Singapore state investment agency, had been approached to join the consortium, along with several Canadian pension funds, including Alberta Investment Management, a pension fund with $66bn under management.”

Source: Financial Times, September 8, 2010

Observations:

  • Sinochem is reported to try to form a consortium to buy a strategic stake of PotashCorp to prevent BHP Billiton from acquiring the company. The Chinese company, backed by the Chinese government, is said to be afraid the targeted position of BHP would decrease stability of the fertilizer supply to China, which is crucial for the food security in the country.

Implications:

  • Chinese firms appear to use the strategy of buying 10-20% stakes of companies that are about to be acquired in order to prevent the acquisition in case the deal is thought to be harmful to Chinese interests. Using this “divide and conquer”-strategy, Chinese firms try to limit the negotiation power of their suppliers.
  • The advantage of state-controlled Chinese firms is the availability of large amounts of cash and the support of development banks, which helps companies like Chinalco and Sinochem to buy strategic stakes in suppliers. Clearly, the pockets of Sinochem are not deep enough to prevent the acquisition without help from other parties.

©2010 | Wilfred Visser | thebusinessofmining.com

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