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BHP in Canadian Charm Offensive for Potash Bid

William MacNamara and Javier Blas

BHP Billiton will launch its charm offensive in Canada this week, as the mining group seeks to convince Canadian regulators and Potash shareholders of the value in its $39 billion (£25.1 billion) bid to take over the fertiliser producer.

Bhp Billiton Headquarters
William West | AFP | Getty Images

The clock has now started ticking on BHP’s hostile bid for Potash .

In the 60-day first round of the offer, Potash shareholders can choose to tender their shares to BHP for $130 each in cash before October 20.

Potash’s board last week called the $130 offer “grossly inadequate”, but BHP went hostile and is taking its offer straight to shareholders.

The Canadian group’s shares ended the week at nearly $150 in New York, suggesting expectations of a higher offer that people close to BHP sought to dampen by saying the company “will be very disciplined on price”.

BHP executives will this week meet Canadian antitrust authorities and Investment Canada. BHP must convince this second body that the bid is of “net benefit” to Canada.

It has already promised to “renationalise” Potash by locating head-office functions in Saskatchewan province and not Chicago, where its US chief executive and other leaders are based.

BHP must also woo the securities commission of Saskatchewan, which can decide how long to allow Potash’s shareholder rights plan – or “poison pill” – to stay in place.

Canada has so far been friendly to foreign resources takeovers.

In the past five years Brazil’s Vale has bought Inco, the nickel miner; Switzerland’s Xstrata bought Falconbridge, another nickel miner; and the UK’s Rio Tinto bought Alcan, the aluminium producer.

However, BHP wants not only to take over Potash but also to break Canpotex, a Canada-based marketing cartel for Potash.

Potash is one of three members of the cartel, which seeks influence over market prices by regulating potash production levels.

Local politicians have warned about the impact of BHP’s intention to run Potash’s mines at full capacity and abandon cartel pricing.

“It is a strength of Saskatchewan that these companies work together to market the potash,” said Brad Wall, premier of the province.

Mosaic, the other main Canpotex member, has also voiced concerns.

BHP will also this week start reaching out to Potash’s fragmented base of shareholders, many of which are Canadian institutions.

The biggest single shareholder with 7 percent, however, is a branch of Capital Group, a Los Angeles-based investor. To force a takeover BHP must persuade holders of 66.7 per cent of Potash shares to accept its offer – either the current one or a sweetened one.

While the bid is now hostile, BHP may reach out to its target’s management over the coming weeks and months to arrive at an agreed offer, according to a mergers-and-acquisitions banker in London.

BHP reports annual results on Wednesday for its year ending June and earnings per share are expected to be $2.38 ($1.92) on the back of high iron ore and copper prices.