When BHP Billiton unveiled its hostile bid for Potash in mid-August, there were plenty of questions about whether it would succeed. But few of those questions centered on the factor that has doomed BHP’s efforts: opposition of the Canadian regulatory authorities.
Investment Canada, as it’s known, made its opposition to the deal known last night, and while BHP has 30 days in which to try and change its offer as to be acceptable to Investment Canada, I am told that the bar to doing so is too high for BHP to realistically consider this deal anything but dead.
The larger question for investors in Canada is whether the government’s opposition to BHP’s bid is specific only to this situation or has broader implications for any Canadian company whose sale might be deemed not to benefit Canada.
There seems little doubt that BHP should have pursued a different strategy in this deal (hindsight is 20/20). Perhaps it could have been less aggressive when dealing with the issue of Canpotex.
Canpotex is the legal cartel that sells Potash outside Canada. BHP effectively said it would end that arrangement which drew it no shortage of enmity from politicians in Potash’s home state of Saskatchewan.
As for shares of Potash, while they are down today, few people expect that will last long. Arbs are piling out, but the fundamentals supporting Potash’s business have improved since mid-August and most of the analysts who follow the company (for what it’s worth) think the fair value is at least 10 points higherthan its current price.
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