Potash Corp’s hunt for alternative bids may lead to China

Potash is soliciting alternative bidders willing to pay more than the $130 a share offered by BHP, the world’s largest mining company, one source close to the matter said. The source said Potash Corp was confident alternative bids would emerge for the leader of a sector with huge growth potential.

Potash is a crucial ingredient in producing better crop yields, key to China as its growing middle class increases the rate of food consumption. Shrinking amounts of arable land worldwide and China’s own limited domestic supply of potash increase its importance in the world’s most populous nation. “The notion is that this is the Cadillac of the (fertilizer) business,” the source said. Potash Corp, based in the Canadian province of Saskatchewan, declined to comment.

Top Chinese fertilizer company Sinofert -- in which Potash owns a 22 percent stake -- is the most logical candidate to lead a counter offer, industry sources say.

While Sinofert itself is small -- its $3.8 billion market value is less than a 10th of Potash’s -- its parent, Sinochem Group, is a huge state-owned group. Sinochem’s revenues were $36 billion last year.

Aluminum giant Chalco, and state-backed chemicals company ChemChina, could also emerge as potential bidders, according to the sources. “I assure you there are numerous organizations in China who would chase potash (assets),” said an Asia-based investment banker who has advised Chinese resources companies on overseas deals but was unauthorized to speak publicly about the matter. “China has very few potash reserves for itself, it’s a commodity which they’re going to be in short supply of. And, does China want to be over the barrel on yet another commodity?”

BHP’s close rival, Rio Tinto, had also been touted as one potential, albeit unlikely, white knight for Potash. But Rio Chief Executive Tom Albanese declined comment on Friday on whether Rio would consider a rival bid. Both Rio and BHP were preoccupied on Friday in fending off speculation their $116 billion iron ore joint venture would not get regulatory approval.

China is the world’s biggest potash buyer and its huge purchasing power gives it the ability to negotiate aggressively with suppliers. India is another big importer.

At $39 billion, BHP’s offer is the highest in any industry this year. Reflecting anticipation of a sweeter bid, Potash’s New York-listed shares have jumped, valuing the firm at $43.8 billion. The shares closed up 91 cents at $148.84 on Thursday.

BHP shares fell 1 percent in Sydney in a weak broader market but edged up 1.4 percent in London.

Potash Chief Executive Bill Doyle, dubbed by the media as the “Fertilizer King” when potash prices spiked in 2007-2008, stands to make $500 million if Potash succumbs to BHP’s offer.

BHP Chief Executive Marius Kloppers is betting an increasingly hungry world will pay dearly for potash. About 150 countries use potash for their crops, but it is only produced in about a dozen.

From the cane fields of Brazil to the rice fields of India and China, potash is an essential nutrient to improve the resistance of plants to disease and to boost crop quality.

Tightly controlled market

Eight companies control more than 80 percent of global supply: Mosaic Co, Agrium Inc, K+S, Uralkali, Silvinit, Belaruskali, and Israel Chemicals (ICL) as well as Potash. Russia moved closer to creating what could be the world’s second-largest potash miner after Potash, when investors friendly to billionaire Uralkali owner Suleiman Kerimov acquired stakes in rival Silvinit this month. And on Thursday, Uralkali said powerful Kremlin deal broker Alexander Voloshin may soon join the company’s board.

Potash’s board has flatly rejected BHP’s bid, and the Anglo-Australian mining giant said it would take the offer directly to shareholders, many of whom have said they’ll hold out for a richer deal.