04 November 2010 15:28 [Source: ICIS news]
HOUSTON (ICIS)--Canada’s rejection of BHP Billiton’s $39bn (€28bn) takeover bid for PotashCorp sets a poor precedent for future acquisitions, and the bid will likely be allowed to proceed after an appeal process, a US investment bank said on Thursday.
In a research note, Dahlman Rose said the Canadian government’s reference to a 30-day appeal process “appears to indicate that the story is not yet over”.
“With the rejection of the BHP offer, the decision sets a poor precedent for future acquisitions of Canadian assets especially since the proposed transaction appeared to help customers and competition over the longer-term,” said managing director Charles Neivert.
According to the firm, the biggest issue for Canadian authorities appeared to be the potential loss of C$3bn ($3bn) of tax and royalty revenues.
However, Australia-based miner BHP had agreed to work with Canada to ensure the deal would not hurt the country’s net revenue, Dahlman Rose said.
“As such, we believe that the federal authorities will garner some concessions during the appeal process and ultimately allow the deal to proceed,” Neivert said.
Canada’s Industry Minister Tony Clement on Wednesday said the offer “did not present a likely net benefit” to the country. The proposal was terminated under the Investment Canada Act, marking only the second time in the 25-year history of the law that a bid was blocked.
The deal had been opposed by Saskatchewan Premier Brad Wall, who said approval of the deal would be “a profound betrayal of our province and its people” and did not rule out a constitutional challenge based on provincial ownership of resources.
The legislature in Saskatchewan, where PotashCorp is based, had unanimously called on the government in Ottawa to reject the BHP bid.
Saskatchewan’s lawmakers were of the opinion that the takeover posed a potential risk to jobs, provincial revenue and Canada’s strategic interest, according to news media reports.
The management of PotashCorp, the world’s largest fertilizer firm, on Thursday reiterated that it felt the offer was too low.
Meanwhile, other groups were said to be mulling rival bids.
PotashCorp’s stock dropped $5.17, or 3.6%, to $140.33/share in early Thursday morning trading on the New York Stock Exchange. Analysts described trading volume for the company as very heavy.
Dahlman Rose said the lower stock prices represented a “near-term buying opportunity” as it expected positive discussions during the upcoming 30-day appeal process.
Additional reporting by Frank Zaworski
($1 = €0.71)
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