Soaring corn prices unlikely to affect BHP bid

TORONTO — Shares in fertilizer producers continued to climb along with the price of corn Tuesday, but the changing fundamentals in the marketplace are unlikely to prompt BHP Billiton to raise its US$38.6-billion bid for PotashCorp, according to one analyst.

TORONTO — Shares in fertilizer producers continued to climb along with the price of corn Tuesday, but the changing fundamentals in the marketplace are unlikely to prompt BHP Billiton to raise its US$38.6-billion bid for PotashCorp, according to one analyst.

“BHP would have to raise their bid to make an acceptable bid, period. What this does is it makes that even more obvious,” said Mark Connelly, an analyst with Credit Agricole Securities in New York.

Fertilizer producers have been on a tear since Friday, when the U.S. Department of Agriculture lowered its corn production forecast for the year by four per cent. The revised forecast sent corn prices soaring by more than 15 per cent between Friday and midday Tuesday, raising expectations that fertilizer will be in high demand to boost yields.

While the gain in Potash Corp. of Saskatchewan’s share price (TSX:POT) hasn’t been as dramatic, it rose nearly four per cent in the same time period to C$149.02 — almost 15 per cent higher than BHP’s $130-per-share bid for the potash giant.

There has been furious speculation over the past few days about who else may be interested in a company that’s well-situated in a growing industry.

The Economic Times of India reported that Sinochem, a state-owned Chinese company that’s rumoured to be the most likely white-knight bidder for PotashCorp, has approached India’s state-owned iron ore miner, NMDC, about making a joint bid.

Meanwhile, Britain’s Daily Telegraph reported that PotashCorp is working on a break-up plan that would see it sell its nitrogen and phosphorus assets and possibly pay a big dividend to shareholders to fend off BHP.

And the Sunday Times of London reported that the Ontario Teachers’ Pension Plan has approached an investment fund in Singapore called Temasek about launching a rival offer.

Teachers’ spokeswoman Deborah Allan wouldn’t comment on the rumour Tuesday.

But Connelly, who has argued that it’s unlikely BHP’s bid will be approved by regulators in Ottawa, said it’s unlikely another bid will emerge as long as the government is sending negative signals.

“My guess is if somebody else is out there, they’re probably calling Canada and saying, ’Hey look, if we need to put in a bid quickly, tell us. But if we don’t need to put in a bid quickly, we’re not going to because we’d rather do our due diligence carefully.”’

He added that any bid below US$170 per share isn’t offering a premium to PotashCorp’s true value, and BHP will have to raise its bid significantly — no matter where corn prices are headed — if it wants to succeed.

The offer still needs approval by the Competition Bureau and Investment Canada. PotashCorp has also asked a U.S. court to delay the bid until shareholders receive more information from BHP, which it has accused of purposely depressing its share price.

Shares in PotashCorp added $1.52 to $149.02 in afternoon trading on the Toronto Stock Exchange.