SCENARIOS-What happens next with BHP’s bid for Potash?

(In U.S. dollars unless otherwise stated)

By David Ljunggren and Euan Rocha

OTTAWA/TORONTO, Nov 1 (BestGrowthStock) – The Canadian government
must decide this week whether to allow a $39 billion hostile
bid by BHP Billiton (BHP.AX: ) for Potash Corp (POT.TO: ), the
world’s largest fertilizer maker.

Ottawa’s decision — due to be delivered by midnight on Nov
3 (0400 GMT Nov 4) — is the first of several hurdles that BHP
would have to clear before it is able to acquire its target.

The Canadian government needs to balance the need to stick
to its pro-business agenda while trying not to alienate
supporters in Saskatchewan, where Potash is based. Officials of
the provincial government strongly oppose a takeover of the
company by the Anglo-Australian mining giant.

Here are some of the scenarios that might unfold in this
crucial stage of the takeover battle:

CANADA GOVERNMENT APPROVES BHP’S BID

Probability: Possible

The ruling Conservatives stress their pro-business agenda.
They have cut corporate taxes and tried to minimize red tape
while proclaiming the importance of free trade.

The Canadian government has turned down a proposed foreign
takeover only once before.

Under the Investment Canada Act, Industry Minister Tony
Clement must judge whether the bid is of net benefit to Canada
in respect to jobs, exports, production and investment.

“Foreign direct investment … (has) been of net benefit to
Canada: more jobs, more competition, more innovation, more
production,” Clement told CPAC television on Friday.

“We can’t close our borders and nor would we want to,
because different companies may want to export to other
countries or invest in other countries,” he said.

Business advocates say Ottawa must approve the bid to
ensure the country remains competitive internationally.

GOVERNMENT APPROVES BHP’S BID, BUT ADDS CONDITIONS

Probability: Possible

The government is wary of weakening its strong political
support in Saskatchewan, where the Conservatives hold 13 of the
14 federal seats in the House of Commons. Shedding even a few
of these seats could make the difference between winning and
losing a national election which is expected in the first half
of next year [ID:nN28250078].

Ottawa could hedge its bets by approving the bid but adding
conditions such as obliging BHP to maintain certain job levels.
Potash has already offered to relocate several key executives
to Saskatchewan from Chicago, removing one of the advantages of
the BHP offer. The miner has already said it would run its
potash unit from Saskatchewan.

Another restriction could relate to the future of Canpotex,
the international marketing arm of Potash Corp, Mosaic Co
(MOS.N: ) and Agrium Inc (AGU.TO: ). BHP has said it may exit the
consortium if it takes over Potash while Saskatchewan sees
Canpotex as crucial for maintaining its royalty revenues.

If the conditions prove to be too onerous for BHP, it could
abandon the bid. Opposition legislators are unhappy with the
idea of restrictions mandated by Ottawa, noting what they say
are broken promises by other foreign companies that have been
allowed to take over Canadian companies.

GOVERNMENT BLOCKS BHP’S BID

Probability: Possible

Saskatchewan Premier Brad Wall, who says Potash is a
strategic resource and must remain in Canadian hands, has
mounted an unexpectedly strong resistance campaign. As of
Friday he said four of the other 10 provinces — Alberta,
Manitoba, New Brunswick and Quebec — also had concerns.

“This fertilizer is fundamentally important to questions
around agricultural and food security that Asia has, that the
whole world has,” Wall told CTV television on Sunday.

Prime Minister Stephen Harper and Clement could conclude
Wall is right and potash is so important it must be protected,
even though “strategic resource” does not appear as a concept
in the Investment Canada Act.

Harper might also decide that the political damage of
approving the bid is too great, although he would be unwise to
state this as a reason for saying no. Alberta, Manitoba and
Saskatchewan alone account for 48 of the 142 seats the
Conservatives hold in the House of Commons.

Perrin Beatty, president and CEO of the Canadian Chamber of
Commerce, said shareholders in a corporation were entitled to
sell to whoever they wanted.

“If any government wants to interfere with that right, it
must only do so on grounds that are clearly defined and
extremely compelling,” he wrote in the Financial Post.

If Canada turns down the bid, BHP is allowed to submit a
modified proposal. Whether the firm would do so is unclear,
since its officials are working closely with Ottawa and already
know what they need to do to win approval.

Even if Ottawa approves the bid, other hurdles remain. Here
are some of the key challenges facing BHP:

POISON PILL

Potash Corp has adopted a “poison pill” in a bid to stymie
BHP’s takeover bid. Saskatchewan’s securities regulator will
hear BHP’s appeal against Potash Corp’s anti-takeover measure
on Nov. 8-9, assuming Ottawa approves the takeover.

The provincial regulator is set to rule on the poison pill
a few days after the hearing. BHP argues the poison pill, or
shareholder rights plan, is a temporary measure designed to
give a target company time to find an alternative offer and not
a long-term measure that can be used to block a takeover. The
poison pill has already been in effect for over two months.

LEGAL BATTLE

The two companies are set to face-off in court in Chicago
on Thursday, when a U.S. District Court begins a hearing on
Potash Corp’s request for a preliminary injunction to block BHP
from closing its tender offer.

If granted, the injunction could potentially stall BHP’s
bid until early 2011 and give Potash Corp more time to find a
competing bidder, or structure an alternative transaction. The
court’s ruling however may turn out to be a moot point if the
federal government blocks the BHP bid.

COMPETITION BUREAU

The Canadian Competition Bureau is set to rule on Nov. 12,
on BHP’s takeover bid. It will examine whether there are any
antitrust concerns raised by the takeover bid.

The ruling is entirely separate from the Investment Canada
Act decision. It is extremely unlikely that BHP’s bid will
falter at this hurdle, as the company currently has no
producing potash operations and its Jansen project in
Saskatchewan is still years away from completion.

SHAREHOLDER VOTE

BHP’s current offer of $130 a share has been labeled as a
“nonstarter” by Potash Corp, its investors and industry
analysts. Potash Corp shares were trading at just under $145 in
New York on Monday.

BHP will have to raise its offer in order to win over
Potash Corp shareholders. It may also be forced to put the deal
before its own shareholders for approval if it raises its bid
and the value of the new offer exceeds 25 percent of its own
market capitalization.
(Editing by Frank McGurty)

SCENARIOS-What happens next with BHP’s bid for Potash?