INSIGHT: Canada rejection of BHP bid for PotashCorp may not stand

09 November 2010 16:18  [Source: ICIS news]

CanadaBy Ben DuBose

HOUSTON (ICIS)--Domestic politics may have led Canada to initially reject BHP Billiton’s $39bn (€28bn) hostile takeover bid for fertilizer major PotashCorp, but global relations could force the nation to ultimately approve the deal.

Last week, Industry Minister Tony Clement said he was not satisfied with the bid “at this time”, noting that the BHP offer did not meet a net benefit test under the Investment Canada Act. It marked only the second time in the 25-year history of the law that a bid was turned down.

That followed weeks of Saskatchewan Premier Brad Wall crusading against the BHP bid, claiming it would jeopardise jobs in the potash industry while hurting provincial revenue and Canada’s strategic interests.

Likewise, the management of Saskatchewan-based PotashCorp had maintained opposition to the bid on grounds that the price was too low.

However, Clement quickly added that Australia-based mining major BHP had 30 days to try and change the government’s mind with a revised offer. That led US investment bank Dahlman Rose to speculate that the deal would eventually win approval.

“We believe that the federal authorities will garner some concessions during the appeal process and ultimately allow the deal to proceed,” said Dahlman Rose managing director Charles Neivert.

“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,” he added.

Canadian analysts concurred with Neivert’s opinion, with several saying that a rejection of BHP’s bid could cast doubt on mergers and acquisition (M&A) activity in the country and harm foreign investor and shareholder confidence.

"Analysts said the decision seemed to be politically driven to help Prime Minister Stephen Harper’s Conservative minority government retain support in Saskatchewan."

“I don’t think it looks good on Canada,” said Terry Shaunessy, portfolio manager at Calgary-based Shaunessy Investment, in a briefing on Canadian business television.

“You had a bona fide bid. The province of Saskatchewan owned PotashCorp 20 years ago; they decided to sell it to the public. We as shareholders bought this thing in good faith, [PotashCorp] CEO [Bill Doyle] ran around looking for a counter-bid, there were none, and now we have been cut off,” he said.

Meanwhile, Canada’s national Globe and Mail newspaper said that the Harper government had “some explaining to do”.

In a front-page editorial on 4 November, the newspaper called on the government to “tell the world where the goalposts now stand when it comes to investing in Canada”.

“Or is this [PotashCorp ruling] simply about the Conservatives seeking to save 13 seats in Saskatchewan - a reasonable desire for any ruling party, but one that deserves a little more honesty from those who just confounded the honest shareholders of the country,” the newspaper said.

Other analysts said Canada’s rejection contrasted with the government’s usual “pro-business” stance.

Following the unexpected announcement, a hearing on BHP’s legal challenge to PotashCorp’s “poison pill” shareholder rights plan was postponed indefinitely.

As such, the next move rests in the hands of BHP, which said it was disappointed by the ruling and reviewing its options.

If that results in BHP raising its prior $130/share offer, the global implications could be too significant for Canada not to approve.

Additional reporting by Stefan Baumgarten and Frank Zaworski

($1 = €0.71)

For more on PotashCorp visit ICIS company intelligence
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By: Ben DuBose
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