Potash results surge but stock drops on bid fears

By Euan Rocha

TORONTO (BestGrowthStock) – Potash Corp (POT.TO: ) reported results and a forecast that blew past expectations on Thursday, but its stock dropped on an unconfirmed report that Canada may block BHP Billiton’s (BHP.AX: ) $39 billion hostile bid.

Prime Minister Stephen Harper said Ottawa would assess the bid fairly. But in an indication that a government veto was far from decided, he also said anti-market views were not in the best interest of the Canadian economy.

The report, in the Globe and Mail newspaper, said Potash Corp’s home province of Saskatchewan may have persuaded Canada to reject the bid because potash itself is such an important resource. “I think we’re going to get screwed,” one source close to BHP told the newspaper.

But a spokesman for BHP, the world’s largest mining company, dismissed the report as inaccurate.

Industry Minister Tony Clement is due to decide by November 3 whether to let BHP’s $130-a-share bid proceed, basing his ruling on the Industry Canada Act, legislation that says takeovers must be of net benefit to Canada.

Potash Corp, the world’s biggest producer of the crop nutrient for which it is named, has rejected the bid as far too low, and it is fighting the offer in the courts.

Gleacher & Co analyst Edlain Rodriguez said the stock fell as arbitrage traders sold shares on talk that Ottawa may block a deal. “When you look at the fundamentals in the fertilizer market right now, they are very, very strong. And I think that’s going to be enough to eventually support the stock, regardless of what happens with BHP’s bid,” he said.

Potash Corp’s results provided ample evidence of that strength. Earnings rose 62 percent for the three months ended September 30, well above forecasts, as higher grain prices boosted demand for fertilizers and supported the fertilizer price.

Third-quarter net income rose to $402.7 million, or $1.32 a share, from $247.9 million, or 82 cents, a year earlier.

Quarterly revenue rose 43 percent to $1.58 billion.

Analysts on average had forecast earnings of $1.16 a share on revenue of $1.31 billion, according to Thomson Reuters

I/B/E/S.

The company said it expects demand for potassium-based nutrients to rise by as much as 20 percent next year and it forecast full-year earnings for 2010 and 2011 that were well above of Wall Street’s previous expectations.

Chief Executive Bill Doyle said BHP’s bid has distracted investors from the strengthening fundamentals in fertilizer markets, and Potash Corp’s share price should be about $155 a share even without a BHP bid. He declined to comment on what alternatives to the hostile offer the company was looking at.

BHP launched its bid in August, but Potash Corp’s stock has consistently changed hands well above the bid price, signaling

expectations of a sweetened bid. The shares closed down 3.3 percent at $142.53 on the New York Stock Exchange.

Saskatchewan wants Ottawa to block a takeover of the provincial crown jewel, fearing a loss of billions of dollars in royalty and taxes as well as jobs. It says Canada will lose control of a strategic asset if BHP takes over Potash Corp.

Saskatchewan Premier Brad Wall said on Thursday he doesn’t want a “golden share” in BHP’s potash business as a means of easing the province’s concerns.

A golden share — giving the province veto power over key decisions — would ostensibly let Saskatchewan influence how BHP produces and markets potash. Wall told Reuters that he doubts it would ease his concerns.

“We’re really focused on ‘no’,” Wall said. “The success of golden shares in exercising some more authority on the part of governments is almost as suspect as promises given under the Investment Canada review process.”

Saskatchewan has complained that acquirers have failed to meet promises made to the Canadian government in prior resource sector takeovers under the Industry Canada Act.

But even if Canadian regulators do approve the deal, BHP will have to win over wary Potash Corp’s shareholders. If BHP sweetens the offer to a price that exceeds 25 percent of its own market capitalization, now around $216 billion, it may also have to seek the approval of its own shareholders.

BHP must also persuade provincial regulators to overturn the ‘poison pill’ anti-takeover defense Potash Corp has adopted and win the legal battle between the companies.

A U.S. District Court in Chicago is due to rule on Potash Corp’s request for a preliminary injunction on November 4 while the Saskatchewan will assess the poison pill on Nov 8-9.

Separately, a local newspaper in Saskatchewan, said on Thursday that a group of Saskatchewan First Nations is collaborating with merchant banks, pension funds and Asian investors to prepare a multibillion-dollar bid to compete with BHP’s proposed takeover of Potash Corp.

(Additional reporting by Rod Nickel and David Ljunggren; Editing by Frank McGurty and Janet Guttsman)

Potash results surge but stock drops on bid fears