BHP Billiton faces a growing chorus of opposition to its proposed US$38.6-billion hostile takeover of PotashCorp, increasing pressure on the federal government to scrap what would be the largest takeover in Canadian history.
The federal Liberals added their voice Wednesday to a deal that Saskatchewan Premier Brad Wall said would not benefit his Prairie province or the country.
“We’ll make a final decision today but as of this morning ... I don’t see a net benefit to Canada or Saskatchewan with this particular takeover as it’s proposed or any slight adjustments that have been proposed,” Wall told reporters Wednesday at the provincial legislature in Regina.
The Saskatchewan government will formally announce its decision on the BHP bid Thursday. But Wall was clear that he’s worried jobs might be at risk and provincial coffers would be hurt if the long term if control of PotashCorp shifts to BHP (NYSE:BHP).
That’s because BHP has a history of maintaining high production from its mineral assets. Should it do that with potash, it could lower prices and reduce the royalties Saskatchewan collects based on the market price of the key mineral used in fertilizer. The province estimates that it stands to lose C$3 billion in revenue of the BHP takeover is successful.
BHP has offered a $370-million one-time payment into a proposed infrastructure fund to help offset any shortfall. Wall said that doesn’t cut it.
“In order for this thing to be neutral in our view, in a best case scenario ... the people of this province would need to see $3 billion come from somewhere. That’s neutral, that’s not a net benefit,” said Wall.
The Saskatchewan government was backed by the federal Liberals, who also urged the Conservatives to reject the proposed deal. Industry Minister Tony Clement is reviewing the bid under the Investment Canada Act, which deems that any foreign takeover of a Canadian company must be of net benefit to the country. He’s scheduled to release his decision Nov. 3.
“Absent convincing evidence of a net benefit to Saskatchewan and to Canada, we simply cannot support BHP’s takeover bid for the Potash Corporation of Saskatchewan,” said Liberal Deputy Leader Ralph Goodale, a longtime Saskatchewan member of Parliament.
“No other country would allow a fire sale of its key national champions so why should Canada? The federal government must act more assertively and transparently to promote our strategic interests, just as other countries do.”
PotashCorp’s (TSX:POT) main mining operations are based in Saskatchewan.
BHP Billiton said earlier Wednesday that it’s still working to get Ottawa’s approval of the takeover, despite Saskatchewan’s expected opposition to the deal. It also wants to negotiate with Saskatchewan and allay its concerns over the transaction.
Saskatchewan doesn’t have the power to kill BHP’s bid on its own but its opposition could influence Ottawa’s review.
BHP, the world’s biggest mining company, restated its commitment to move the head office and of its global potash business to Saskatchewan and to maintain current levels of employment at PotashCorp’s operations in Canada. BHP also said it is confident that it can address the province’s concerns about lost revenue.
“Our focus continues to be on working with the government of Canada and demonstrating the significant net benefits we can bring to the country,” Andrew Mackenzie, BHP’s chief of non-ferrous operations, said in a statement.
“We are ready to underline our commitment to Canada with substantial undertakings on jobs, taxes, investment and community spending that will create immediate benefits for the people of Saskatchewan and the nation more broadly,” he added.
Wall sounded skeptical. Many companies have made commitments to gain government approval for takeovers and not followed through, he said.
“In every single takeover of a natural resource company in our country of late, promises have been made and promises are broken. And Investment Canada has been letting the companies off the hook,” Wall said.
“We’re not going to bet the future of this province, the future of this important industry and jobs for Saskatchewan people, on commitments that may or may not materialize.”
PotashCorp shares lost $2.08 or 1.4 per cent to $146.32 in Toronto but remained above BHP’s offer of $130 per share. BHP’s shares gained $2.61 or 3.3 per cent to US$81.34 in New York.
In another development, the Canpotex potash marketing cartel owned by PotashCorp, Agrium Inc. (TSX:AGU) and Mosaic Co. (NYSE:MOS), reached a preliminary three-year agreement with a division of Sinofert, a China-based fertilizer company that’s partly owned by PotashCorp.
Under the agreement, announced by Sinofert in a filing with the Hong Kong Stock Exchange, Canpotex will supply about one million tonnes of Canadian potash to the company in 2011, increasing by 50,000 tonnes in each of 2012 and 2013.
The prices paid for the potash will be subject to negotiated adjustment in relation to market conditions but the three-year price cap is contemplated at US$2.2 billion.