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Potash Rejects BHP Billiton Bid as Undervalued

Potash of Saskatchewan said Tuesday its board has rejected an unsolicited takeover bid from BHP Billiton worth about $38.49 billion, saying it undervalues the fertilizer producer.

Farmer picking weeds
Mark Adams | America 24-7 | Getty Images
Farmer picking weeds

BHP Billiton, an Australian natural resources company, is offering to buy Potash for $130 per share, a 16 percent premium over Monday's closing price.

Shares of Potash surged in pre-opening trading after the company rejected the offer. They rose $29.85, or 27 percent, to $142.

Potash said its board has adopted a shareholder rights plan, also known as a poison pill, to give the company time to better develop alternatives to enhance shareholder value.

It said the BHP Billiton bid is nonbinding and "opportunistic."

"The fertilizer industry is emerging from the recent global economic downturn, and we feel strongly that PotashCorp shareholders should benefit from the current and potential value of the company," Potash said. "Global demand for food is steadily increasing, creating an attractive operating environment for the entire fertilizer industry and, with our premier position, PotashCorp is uniquely poised to benefit."

Potash consumption has been growing over the past decade because of greater demand for fertilizer from developing nations. Potash is any of several compounds containing potassium, used chiefly in fertilizers. Its main markets are China, the U.S., Brazil and India.

Last month the Canadian company reported its second-quarter net income more than doubled to $472 million, or $1.55 per share, as revenue surged 68 percent to $1.44 billion.

BHP has been ramping up its Potash mining business in Canada for the past four years. It holds exploration permits for over 7,338 square kilometers in Saskatchewan, where its best prospect so far — the "Jansen Project" — is expected to begin producing potash from 2015.

BHP bought out its Anglo Potash joint venture in Canada for $282 million in 2008 and bought Athabasca Potash earlier this year for about $320 million, extending its potential exploration acreage in Canada to over 14,000 kilometers. The mining giant has said it sees potash as a relatively low cost business that offers it significant growth.