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Canada rejects BHP bid for Potash

November 4, 2010

“Canada has rejected BHP Billiton’s $39bn bid for PotashCorp, dealing a potentially fatal blow to the Australian miner’s 10-week pursuit of the Saskatchewan-based fertiliser producer.”

Source: Financial Times, November 4 2010

Observations:

  • The acquisition has been rejected because of unclear benefit to the country. BHP has 30 days convince the government of the net benefit for Canada of the transaction.
  • The main issue for the Canadian provinces is the prospect of reduced tax revenues. Additionally, the government will require additional certainty about the security of jobs.

Implications:

  • The rejection should not be interpreted as a final decision, but rather as a logical way of pressuring BHP Billiton to be more generous to the Canadian government in conceding securities. The company will most likely come with a counteroffer that is hard to reject with the argument of negative ‘net benefit’.
  • If the company manages to convince the government, it still has to persuade shareholders to sell the shares. Most likely it will have to increase the price by approx. 10 percent to gain enough support. However, the actions of other parties like Sinochem and Phosagro might force the company to back off, as a bid above $150 could not be explained to BHP’s shareholders.

©2010 | Wilfred Visser | thebusinessofmining.com

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