By Leia Michele Toovey- Exclusive to Potash Investing News
The market collectively held its breath last week, awaiting the ruling from the Canadian government as to whether or not BHP Billiton’s (ASX: BHP) bid for Potash Corporation of Saskatchewan (NYSE:POT) would be approved. Late in the day, on Nov 3rd, Industry Minister Tony Clement rejected the offer, saying the proposal doesn’t provide a “net benefit” to Canada. Under Canadian law, BHP has 30 days from the ruling to appeal.
The government is currently in the process of explaining to BHP Billiton Ltd. why it rejected the company’s $40 billion bid. “We have a process that involves a statutory requirement to explain our decision to them, so we’re in the process of doing that,” Clement told reporters today in Ontario.
Morgan Stanley analysts said in a report the chances of an appeal succeeding are “very low as it would be an abrupt about-face for Canada’s ruling party.” Morgan Stanley added that the rejection is likely to increase the pressure on BHP to return excess cash to shareholders.
After the fall-out of Canada’s rejection of BHP’s potash bid, analysts claim that it is most likely that Potash Corp will remain, and thrive, as a stand-alone company. An independent study commissioned by Potash Corp’s home province of Saskatchewan in September had warned officials against blocking BHP’s bid. The report argued that such a move would depress Potash Corp’s share price and create a “halo” effect around the company’s senior management team. However, even the day after the news broke, shares in Potash Corp were down only 2.4 percent.
Potash Corp. has been searching for alternatives to the BHP bid since the hostile bid emerged, however their attempt to find a rival were futile. Now, after Canada ruled against BHP’s $130-a-share bid is even more unlikely. There are only a handful of companies across the world could even hope to rival the BHP offer. Diversified miners like Rio Tinto and Vale quickly counted themselves out of the race. China’s state-owned chemical giant Sinochem was unable scrape a bid together, despite Chinese concerns around potash supplies. An alternative bid from Russian fertilizer company Phospagro would face even greater scrutiny.
Rumours are circling that rather than appeal the decision; BHP will set its sights on another target. That rumoured target? Mosaic Co. (NYSE: MOS) is the next biggest potash producer, after Potash Corp., and has been the subject of such speculation in the past.
While watching BHP’s failure to acquire Potash, Brazilian mining rival Vale (NYSE: VALE) has formulated its own plan to assemble a stronger foothold in the fertilizer business. Vale is currently working on launching an IPO of its growing fertilizer assets. While Vale is keeping the details of this offering quiet, Vale’s executive officer for the fertilizer business claimed that this IPO would likely be made available in the first half of 2011. Vale, the world’s second largest mining conglomerate is anxious to diversify due to the fact that the majority of its assets are tied to the iron ore business. Vale Chief Executive Officer Roger Agnelli indicated in an interview that he is steering the company deeper into the fertilizer business by buying more assets in Brazil and elsewhere. He plans to invest $2.5 billion in 2011, or 10.4 percent of its annual capital expenditures budget, in fertilizer projects in North and South America and Africa.
The company said it wants to become a leading player in the global fertilizer markets, and targets producing 3.4 million tonnes of potash and 12.7 million tonnes of phosphate rock by 2015. Currently, Vale is the only producer of potash in Brazil and supplies about 10 percent of its domestic demand.