Cramer on Tuesday had a strong message for his viewers regarding BHP Billiton’s attempted buyout of Potash: His regular rules for owning takeover targets do not apply in this case.
Cramer typically recommends the selling of any company that has received a takeover bid on the idea that the upside in these situations is capped. But he can think of a bunch of reasons—four, in fact—why investors should hold onto Potash .
“At the very least,” Cramer said, “the stock deserves to go out at, yes, $160 a share, well below its top in 2008 but well above the $143 price tag where it went out today.”
First, some background: Fertilizer maker Potash scoffed at BHP’s $38.6 billion offer, stating unsurprisingly that the company was worth much more. CEO Bill Doyle said that BHP is making “an ill-disguised attempt to exploit an anomaly in the equity market valuation of Potash Corp.,” Reuters reported, just as the agriculture market is emerging from “an unprecedented demand decline associated with the severe global downturn.”
Cramer agreed. He thinks the fertilizer cycle is just revving up and a worldwide shortage of crops is “now quite evident.” This should create tremendous demand for Potash’s products.
Reason number two why Potash should fetch a higher offer? It just takes too much time and money to replicate the company’s business. So anyone who wants low-cost potash fertilizer must buy Potash to enter the space.
Third, inventories are leaner than they’ve been in a very long time.
And finally, there’s the scarcity factor. There are so few fertilizer properties because there already has been a ton of consolidation in the sector.
Taken together, these factors have turned a classic commodity business into a propriety one, Cramer said. So, unlike almost any other takeover deal that he has ever opined upon, he urged viewers to hold their POT.
“I think there could be loads of additional upside here,” Cramer said. “I want you to hold on for higher prices.”
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