Potash is seeking a buyer willing to top BHP Billiton's $39 billion hostile offer for the world's largest fertiliser firm after shareholders balked at a bid they considered too cheap.
BHP's close rival, Rio Tinto, has been touted as one potential, albeit unlikely, white knight for Potash. But Rio chief executive Tom Albanese today refused to comment on whether he would look at mounting a competing bid.
Both Rio and BHP were preoccupied today in fending off fresh speculation their $116 billion iron ore joint venture would not get regulatory approval, potentially stripping an expected $5 billion in cost savings from BHP's coffers.
Potash is soliciting alternative bidders willing to pay more than the $130 a share offered by BHP, the world's largest mining company, a source close to the matter said.
At $39 billion, the total value of the BHP offer is the highest in any industry this year.
"Any time you get something like this you explore all your options," said the source, who asked not to be named. "There are a lot of ways to get creative about this thing."
The source said Potash was confident alternative bids would emerge for the leader of an industry with huge growth potential.
"The notion is that this is the Cadillac of the (fertiliser) business," the source said.
Australian investment bankers not on the bid but with experience dealing with BHP and Rio also said other bids would be canvassed.
The whole world out there is looking at what they can do here as this company is in play," one banker said.
Earlier yesterday, the Wall Street Journal reported Potash was exploring potential alliances with global chemical and agricultural companies, as well as Chinese sovereign banks, citing people familiar with the matter. Potash declined to comment.
Potash's board has flatly rejected BHP's bid, and the Anglo-Australian mining giant said it would take the offer directly to shareholders, many of whom have said they'll hold out for a richer deal.
The offer "is probably low relative to the long-term earning power of the company", said Bob Gorman, chief portfolio strategist at TD Waterhouse. "We thought this was the opening salvo. Potash is in play."
Potash's New York-listed shares have climbed 33 percent since BHP made its offer, reflecting anticipation of a sweeter bid. The shares closed up 91 cents at $148.84 yesterday, valuing the company at $43.8 billion. BHP shares fell 1.4 per cent to A$37.78 in Sydney by 0159 GMT. The broader Australian market was down 1.0 per cent.
In the latest twist to the proposed BHP-Rio iron ore joint venture, a local newspaper quoted mining executives as saying competition regulators had rejected the two miners' arguments that the venture would not having price-setting power.
"It's dead and the coffin's being lowered into the ground," the Sydney Morning Herald reported.
Rio's Albanese said in Shanghai that the technical arguments for the joint venture were still strong, and they were continuing to seek regulatory approval.
BHP also faces regulatory hurdles for its Potash bid, which sources have said would be the main focus before trying in earnest to win over the Canadian company's shareholders.
BHP is betting the absence of any rival offers will sway Potash investors to support its bid, said the source familiar with the situation.
With its takeover offer, BHP aims to vault to the top of a rebounding fertiliser industry, which suffered during the global economic crisis.
The nutrient, critical for boosting crop yields, commanded more than $1,000 a tonne during the commodity boom of 2007-08. It has since fallen to about $350 to $375 a tonne levels but many analysts believe rebounding incomes and rising demand for food in China and India mean prices will inevitably rise.
To pay for its offer, BHP has secured a $45 billion loan from its banks, adding to an existing cash pile of $11 billion. The deal fits into BHP's strategy of building output in low-cost, exportable commodities, particularly those needed in China, its biggest market.
Reuters