Canadian province won’t back BHP’s Potash bid

By Rod Nickel and Euan Rocha

WINNIPEG/TORONTO (BestGrowthStock) – BHP Billiton (BHP.AX: ) has failed to meet demands that are necessary to win Saskatchewan’s backing of its hostile takeover bid for Potash Corp (POT.TO: ), an official with the Canadian province said, possibly scuppering the $39 billion attempt.

BHP, the world’s biggest miner, offered Saskatchewan a fraction of the C$3 billion ($2.91 billion) over 10 years that the province is seeking to offset expected revenue losses, the government official said on Tuesday, causing talks to break down.

Saskatchewan will now give the bid an unfavorable review later this week, a source familiar with the matter said, possibly leading to the Canadian government quashing the deal.

Saskatchewan, where Potash Corp, the world’s top fertilizer producer is based, will play a key advisory role as the Canadian government decides whether to approve BHP’s bid, or any other that may emerge, on the basis of whether it offers a net benefit to the country.

“At the heart of any ‘net benefit’ calculation is the people of Saskatchewan being compensated for the C$3 billion in revenue Saskatchewan will lose over the next 10 years as a result of a BHP Billiton takeover of Potash Corp,” the official said. “This would need to happen before we would even consider supporting the deal.”

BHP offered a C$370 million one-time payment into an infrastructure fund, the government statement said, adding it “doesn’t even come close to offsetting the province’s revenue loss.” Saskatchewan has not talked with BHP about a special tax, the statement said.

A report for the Saskatchewan government earlier this month said BHP’s bid could cost the province as much as C$5.7 billion ($5.5 billion) under current tax rules if BHP acquires Potash, maximizes production and develops its own Jansen project in Saskatchewan.

The cost of building the Jansen potash mine, which would be the world’s biggest, could offset taxes that existing Potash Corp mines pay to Saskatchewan.

“The position of the government of Saskatchewan is unchanged,” the statement said. “…We will protect the economic and strategic interests of the people of Saskatchewan.”

The province’s energy minister, Bill Boyd, said he had no comment when reached late on Tuesday.

BHP STILL UNDER PRESSURE

Saskatchewan Premier Brad Wall will speak on the bid on Thursday in the provincial capital of Regina.

“The provincial response will certainly be highly persuasive at the federal response level,” said Darryl Levitt, a Toronto lawyer at Macleod Dixon who is not involved in the deal. “It would be important for BHP to get the initial support of the Saskatchewan government as this will stand it on solid ground at the federal approval level.”

BHP may still be under pressure to make concessions to Saskatchewan, Levitt said, possibly including a “golden share” that would give the province authority over how the company operates in Saskatchewan.

Canada’s federal government has said it will consider Saskatchewan’s views carefully as it determines if the bid is of net benefit to Canada, the litmus test for approval under the Investment Canada Act. Ottawa’s deadline for its review is November 3.

“The review process is rigorous, and does involve consultations with affected provinces and other government departments,” said federal Industry Minister Tony Clement’s chief spokesman Erik Waddell. “The confidentiality provisions of the Investment Canada Act do not allow me to elaborate further.”

Saskatchewan politicians have raised concerns about losing some of the corporate taxes and price-sensitive royalties the province collects from the production of potash, a key crop nutrient, if BHP changes the way Potash Corp produces and markets the fertilizer.

The Saskatchewan government sought to negotiate commitments from BHP that would ease those concerns, but those talks failed, the source familiar with the matter said.

No rival bid has emerged since BHP made its offer in August, and Sinochem (600500.SS: ), the state-owned Chinese chemical company, considered the most likely to organize a rival bid, last week backed out of the race.

(Reporting by Rod Nickel in Winnipeg, Euan Rocha in Toronto and David Ljunggren in Ottawa; editing by Frank McGurty)

Canadian province won’t back BHP’s Potash bid