China digs for ways to stymie BHP’s Potash Corp bid

By Sonali Paul and Joseph Chaney

MELBOURNE/HONG KONG (BestGrowthStock) – China is stepping up attempts to hamper BHP Billiton’s $39 billion hostile offer for Potash Corp, amid worries about future supplies of fertilizer it needs to rapidly boost food production.

China’s state-run Sinochem has hired HSBC to advise it on options regarding Potash, the world’s largest fertilizer maker, the Wall Street Journal reported on Wednesday.

Citing a person familiar with the situation, the WSJ said the Chinese company’s move was preliminary and did not mean it had decided to make a counterbid for Potash.

Sinochem in Beijing was not available for comment, while HSBC in Hong Kong declined to comment.

Analysts are skeptical that China, the world’s top consumer of potash, will come to the rescue of Potash Corp after other foreign deals collapsed.

“Above all the Chinese will not want to be rebuffed in any way. It was bad enough what happened to them with Rio Tinto so I would think they would be extremely cautious,” said analyst Tom Gidley-Kitchin at Charles Stanley in London.

Miner Rio Tinto last year scrapped a $19.5 billion equity and asset tie-up with Chinese state-owned aluminum group Chinalco.

“The loss of face after all the problems they have had would be bad for the country and bad for the person who signs off on it. This is so high profile,” Gidley-Kitchin said.

Potash Corp has held discussions with Sinochem, a source close to the matter told Reuters in August. Potash has a 22 percent stake in top Chinese fertile company Sinofert, a subsidiary of Sinochem.

Sinochem’s options may be limited due to Canadian government worries. The energy minister of Saskatchewan, Potash’s home base, said the province would have “lots of concerns” about a Chinese sovereign fund or state-owned company buying part or all of the company.

“That is where some of the concern would be: having a customer whose interests obviously are to have very low prices,” energy minister Bill Boyd told Reuters in an interview this week.

On Wednesday, a Chinese newspaper reported China was also considering launching an anti-monopoly investigation into the deal.

China buys about 7 percent of the output of Potash Corp, which controls around one-fifth of world production of the key crop nutrient.


If HSBC has snared a mandate with Sinochem, that would be significant as HSBC did not rank within the top 25 mergers and acquisitions advisers worldwide in 2009, while Morgan Stanley was No.1, according to Thomson Reuters data.

Bankers not advising BHP or Potash Corp, such as Morgan Stanley and Australia’s Macquarie Group, are scrambling to find potential bidders to enter the fray, bankers have said.

Rio Tinto, Brazil’s Vale and Canada’s Teck Resources are all seen as unlikely to get into a bidding war against BHP as they have other priorities or don’t have the balance sheet strength.

Potash Corp shares slipped 0.9 percent on Wednesday to $145.95, while the U.S. market rose, reflecting creeping doubts about the chances of a rival bid emerging.

But the stock was still 12 percent above BHP’s offer of $130 a share, with investors holding out for a higher offer.

BHP shares in London rose 0.5 percent to 1,916.5 pence by 1212 GMT, in line with the British mining index.

BHP shareholders on average see $155 a share, or $46 billion, as the maximum BHP should pay for Potash Corp, according to a Reuters poll, while Potash shareholders see $162 a share clinching a deal, according to a separate Reuters poll.

BHP investors do not need to approve the $38.6 billion bid. However under British listing rules, they would have to vote on a deal if the offer is raised to 25 percent of BHP’s total market value.

Based on BHP’s market value on Thursday, the offer would have to be hiked to at least $45.3 billion to trigger a vote of its own shareholders.

“Even uncontested, they will pay too much,” said a Melbourne-based fund manager whose fund owns BHP shares. “Once it gets into the $160s, you will get a fairly negative shareholder reaction.”

(Additional reporting by Megan Davies in NEW YORK, Alison Leung in HONG KONG and Eric Onstad in LONDON; Editing by Ed Davies, Lincoln Feast and Erica Billingham)

China digs for ways to stymie BHP’s Potash Corp bid