Mining giant BHP Billiton has rephrased its quiet preliminary proposal to Saskatchewan fertilizer firm PotashCorp as a hostile takeover bid.
“We firmly believe that PotashCorp shareholders will find the certainty of a cash offer, at a premium of 32 per cent to the 30-trading day period average, very attractive and we have therefore decided to make this offer directly to those shareholders,” Billiton chairman Jac Nasser said in a release Wednesday.
The Australian firm’s formal offer for Potash is expected to appear in newspaper ads starting Friday, and will remain open until 11:59 p.m. ET on Oct. 19, unless Billiton announces an extension.
The offer, Billiton said, is “fully funded and provides PotashCorp shareholders with immediate liquidity and certainty of value regarding the company’s growth potential in the face of volatile equity markets.”
Billiton decided to take its all-cash US$130-per-share offer directly to Potash’s stockholders after the Saskatoon company went public Tuesday with Billiton’s proposal and Potash’s rejection of same.
Specifically, PotashCorp on Tuesday ripped Billiton’s offer as a “grossly inadequate” and “aggressive attempt to acquire (PotashCorp) for significantly less than its intrinsic value.”
“Down the road”
Billiton’s offer started last Thursday as a proposal from Billiton CEO Marius Kloppers to PotashCorp CEO Bill Doyle. Kloppers “was advised by Mr. Doyle that PotashCorp was not for sale and had no interest in discussing a combination at this time.”
Nasser then put the proposal in writing last Friday to PotashCorp board chairman Dallas Howe, who wrote back Tuesday that his board had unanimously rejected the offer.
A successful bid would still need PotashCorp’s co-operation, as the company on Tuesday also imposed a shareholders’ rights plan, commonly called a “poison pill,” on the ownership of its shares.
Billiton said its offer depends on the termination of the shareholders’ rights plan. As it stands, if Billiton or any other hostile bidder buys a stake of over 20 per cent of PotashCorp without permission, the poison pill would automatically flood the market with cut-price shares for Potash’s other shareholders.
Another condition is for Billiton to receive tenders which, when combined with Billiton’s own PotashCorp shares, would give it more than a 50 per cent stake.
Billiton also stressed that its offer isn’t conditional on financing, nor on approval from its own shareholders.
It estimated Wednesday it will need about US$43 billion in total to “consummate” its offer, including any funds required to repay or refinance PotashCorp debt if need be.
Billiton may need more than that, according to industry observers. “We do not anticipate other bidders to enter the fray (for PotashCorp) but expect a higher bid down the road,” Charles Neivert, managing director of the agriculture and chemicals research division for New York investment bank Dahlman Rose, wrote in a note Wednesday.
Billiton on Wednesday also laid out its plans for management of PotashCorp, whose head office is required by law to remain in Saskatchewan.
Billiton, which in the last few years has bought exploration rights to over 14,000 square kilometres of “highly prospective ground” in Saskatchewan’s potash basin, said it aims to “establish a global potash business in Canada” and base the president and management of that Canadian potash business in Saskatchewan.
Billiton said Wednesday it also plans to “maintain current levels of employment” at PotashCorp’s Saskatchewan and New Brunswick operations for the “foreseeable future,” and would also continue Potash’s planned and previously announced capital spending programs.
Furthermore, it said it will continue to “progress its plans” to develop its own greenfield potash project at Jansen, Sask., about 140 km east of Saskatoon.
Melbourne-based Billiton, which also already controls diamond mining assets in the Northwest Territories, added that it plans to “identify and propose a Canadian nominee” to stand for election to its own board.
A PotashCorp takeover “will accelerate BHP Billiton’s entry into the fertilizer industry and is consistent with the company’s strategy of becoming a leading global miner of potash,” the bidder said.
While the federal and Saskatchewan governments haven’t yet formally responded to Billiton’s proposal, the federal New Democrats are already urging the government to make sure any takeover of PotashCorp is subject to a “comprehensive public review.”
“As we’ve seen with the takeover of Inco, Falconbridge, Stelco and Nortel there can be a devastating cost when governments give foreign corporations carte blanche to take over without any accountability or transparency,” the party’s deputy industry critic, Ontario MP Claude Gravelle, said in a release Wednesday.
“As with any foreign investment agreement, the BHP proposal has the potential to strengthen the economy and create jobs, but it must be subject to a fully public review.”