U.K. report says BHP Billiton readying to sweeten bid for Potash Corp

OTTAWA — Shares of Potash Corp. of Saskatchewan will still have significant potential to move higher even if BHP Billiton’s US$38.6-billion hostile takeover bid is rejected by the federal government this week, analysts say.

OTTAWA — Shares of Potash Corp. of Saskatchewan will still have significant potential to move higher even if BHP Billiton’s US$38.6-billion hostile takeover bid is rejected by the federal government this week, analysts say.

UBS analyst Brian MacArthur recently raised his target price on the company from US$170 to $175 per share — far above the BHP bid of $130 cash per share.

“Given the improved fertilizer market we believe the shares would be trading about $130 per share in the absence of a bid,” MacArthur wrote in a note to clients Monday.

PotashCorp (TSX:POT) has repeatedly said the Anglo-Australian mining giant’s bid is too low, given the important long-term value of its business. Shares in the company have consistently traded above the offer price and shares of rivals.

Rumours that BHP is poised to increase its offer suggest the company is anticipating Ottawa will give the takeover a green light and that it is aware PotashCorp shareholders are likely looking for a higher offer — which is also supported by PotashCorp’s Monday trading price of C$148.50 on the Toronto Stock Exchange.

The Sunday Times in London cited sources close to the deal as saying BHP’s $130 per share offer could be raised by as much as 10 per cent. A Melbourne-based spokeswoman for BHP told The Canadian Press that the company had no immediate comment on the report.

Credit Agricole Securities analyst Mark Connelly, who believes the government will block the deal, reiterated a $170 price target on Monday.

“Right now, all you have to do is appreciate that potash markets, like phosphate markets, are tight, and that producers have the upper hand,” Connelly said.

“That means rising prices, until something else pushes them down again.”

Scotia Capital estimated that shares in the Saskatoon-based company could be worth $142 even before the takeover premium is added, to bring its price target to $157.

“For whatever reason, if BHP walks or is told to walk from PotashCorp, we speculate 10 per cent downside on PotashCorp stock price,” Scotia Capital analysts Sam Kanes and David Forster wrote in a report.

PotashCorp has been embroiled in the bitter takeover battle with BHP since August. CEO Bill Doyle, who has said the bid significantly undervalues the fertilizer giant, has been trying to attract a white-knight suitor to compete with BHP.

Industry Minister Tony Clement is wrestling with whether to allow the takeover in the face of opposition to the deal from Saskatchewan Premier Brad Wall, as well as the federal opposition parties and several other provinces.

Wall, who travelled across the country last week to sell his message that the takeover should be blocked, was back in Regina this week.

“Premier Wall is confident that Saskatchewan’s position is fully understood and receiving due consideration by the federal government,” the province said in a statement.

The Liberal and NDP opposition urged the government during question period Monday to block the deal, listing those who oppose the deal.

“The Minister of Industry will only approve the deal if it is a net benefit to Canada,” Government House Leader John Baird said.

Under the Investment Canada Act, the federal government makes its decisions based on whether the foreign takeover would bring a “net benefit” to Canadian communities.

Ottawa blocked an attempt by MDA (TSX:MDA) to try to sell its space division to U.S. firm Alliant Techsystems Inc. in 2008, the first and only time the federal government rejected a foreign takeover outright under the act.

BHP has already made several promises to Saskatchewan, saying it would locate the headquarters of its global potash operations in Saskatoon, maintain employment levels and ensure the province’s coffers aren’t hurt by the takeover.

Ottawa has said it will decide by Wednesday whether the PotashCorp takeover can go ahead.

If the government approves the deal, BHP Billiton would then be in a position to take the hostile offer directly to PotashCorp shareholders or try to work out a friendly deal by topping its current bid.

PotashCorp disclosed in a recent regulatory filing that it has spoken to 15 different “financial and state-sponsored potential bidders or investors” about making a competing bid for the company.

“The PotashCorp board believes that there is a real and substantial probability that alternatives to the BHP offer will emerge that will increase shareholder choice and enhance shareholder value,” the company said in a filing with Saskatchewan’s securities regulator.

Though BHP had made several promises in an attempt to woo Saskatchewan, Wall has said that no amount of promises are going to make him support the takeover.

Wall has raised concerns that BHP’s plans to run PotashCorp’s operations at full capacity would hurt expansion plans by other players in the industry, including Mosaic Co. (NYSE:MOS) and Agrium Inc. (TSX:AGU), potentially costing up to 750 jobs.

The premier has also said he believes Saskatchewan could lose between C$3 billion and $6 billion in revenue from taxes and royalties if BHP’s bid is successful.

Potash Corp. of Saskatchewan Inc. is the world’s biggest producer of the nutrient used in fertilizer.