Home > Mergers & Acquisitions > Sinochem struggles to mount Potash bid

Sinochem struggles to mount Potash bid

October 1, 2010

“Sinochem of China is struggling to find partners to mount a counterbid for PotashCorp and derail BHP Billiton’s $39bn hostile takeover following the collapse of talks with a potential Russian partner.

The failure of talks with UralKali, the Russian fertiliser group, is the latest setback for the state-owned Chinese chemical group after earlier approaches to a Canadian public pension fund, and Temasek, the Singapore’s investment agency.

Bankers believe Sinochem needs several partners, including non-Chinese companies, to mount a serious rival bid to BHP Billiton and assuage fears in Ottawa about the sale of PotashCorp to a Chinese state enterprise. PotashCorp is the largest global producer of mineral fertiliser, demand for which is soaring in China, India and other emerging economies.”

Source: Financial Times, September 29, 2010

Observations:

  • The deadline of BHP Billiton’s bid for PotashCorp is November 18th. The company hopes to convince shareholders to sell over 2/3 of the shares at a price of $130/share.
  • China imports approx. 4 million tonnes of potash per year, growing at a high rate. The Chinese government is afraid a takeover of PotashCorp by BHP and the resulting potential change in pricing mechanism will reduce stability in the market.

Implications:

  • PotashCorp has built up a shareholder plan that makes it difficult for a foreign company to assume control. The plan is mainly targeted against BHP, but makes it harder for other foreign firms to prevent the merger from taking place as well. Many Canadian officials will not be glad if PotashCorp falls in Chinese hands, therefore the Chinese government, via Sinochem, is looking for other partners.
  • The probability of a competing bid surfacing is rather low, as it would have been in the interest of a competing party to announce the counterbid as early as possible. The most likely remaining alternative is a partnership between a major minor and a trading house, many of which hold strong positions in the agricultural sector.

©2010 | Wilfred Visser | thebusinessofmining.com

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  1. hmm
    October 2, 2010 at 5:55 am

    huh? China is tactical and they are waiting (‘watching’) the situation and will probably strike soon or right in the last moment so as to gain the most info on what will happen with the regulatory concerns with canada and bhp. I dont see any advantage in immediately counter bidding.. I think now that another country has announced a 4 mil tonne contract for potash from canpotex in the coming years will make canada see that giving away the crown jewel (and money maker) of canada to bhp is not a ‘net benefit’ for the province. I think that if Sinochem backed by a blank check from CIC can assure canadian regulators that they will stay in canpotex and work to keep prices stable that canada will allow a bid. Canada should surely not allow bhp to bid because they will break up canpotex and hurt canada royalties over the long term; basically bhp will turn the ‘spicket’ ON full blast and run the potash mines dry snapping up all of canada’s potash and sell it on the open market to suck all the profit they can out of the deal..this is after they already would have snapped up potash corp’s assets (estimated to be worth more than 60Billion on their own) for dirt cheap.. its simply not a ‘net benefit’.

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