Potash rejects unsolicited $38.49B bid from BHP Billiton, adopts poison pill defense

Potash calls Billiton bid “grossly inadequate”

ST. LOUIS — A global race to snap up fertilizer companies accelerated Tuesday, when fertilizer producer Potash Corp. of Saskatchewan Inc. rejected a buyout offer worth $38.49 billion, calling it “grossly inadequate.”

The unsolicited takeover bid from BHP Billiton Ltd. raises the ante for agribusiness firms trying to lock in ownership of fertilizer supplies before an expected rebound in crop production. Fertilizer prices skyrocketed during the food shortage of 2008, and companies like BHP think history could repeat itself as consumers start spending more on food.

“It’s a form of a commodity play,” said Scott Irwin, professor of agriculture at the University of Illinois, Urbana-Champaign. Companies are tying to snap up fertilizer makers while prices — and their stock valuations — are still relatively low.

The Potash board said that’s exactly what BHP is trying to pull off. The company said it believes BHP’s timing is particularly troubling because Potash’s stock is still undervalued, as the industry only begins to emerge from the economic downturn.

“I am not saying that we are opposed to a sale, but what I am saying is we are opposed to a steal of the company,” Potash President and CEO Bill Doyle said during a conference call with analysts on Tuesday.

Potash adopted a shareholder rights plan, known as a poison pill, to prevent anyone from snapping up more than a 20 percent stake as it shores up company defenses.

BHP Billiton, an Australian natural resources company, is offering to buy Potash $130 per share, a 16 percent premium to the stock’s closing price Monday. Shares of Potash surged above the bid price to a new 52-week high, with many investors thinking that that bid is only going to go up.

The offer is big enough that it could redefine global competition for potash, UBS Investment Bank analyst Alexei Morozov said in a note he co-authored Tuesday.

Potash is a potassium compound used in agriculture and industry

Potash consumption has been growing over the past decade as the need for potash grows in tandem with the development of countries like China and India. The main markets are China, the U.S., Brazil and India.

“We believe that the offered price levels may set new valuation benchmarks for the sector, as they indicate what price strategic investors are willing to pay for potash companies,” the note said.

The fight for new assets may only be accelerating.

On Sunday, fertilizer company Agrium offered more than $1 billion for Australian grain producer AWB, a company that had already been targeted by rival GrainCorp Ltd.

And Agrium lost its $5.5 billion hostile takeover bid for fertilizer producer CF Industries in March. Instead, CF acquired Terra Industries for $4.7 billion in April, creating one of the world’s largest fertilizer companies.

These agribusinesses are aggressively bulking up so that they can compete with industry giants like privately held Cargill. On Tuesday, Cargill reported net income of $2.6 billion on revenue of $107.9 billion for the year ended in June. Cargill became the majority shareholder of fertilizer maker Mosaic Co. in 2004.

Last month Potash Corp. reported its second-quarter net income more than doubled to $472 million, or $1.55 per share. Revenue surged 68 percent to $1.44 billion.

BHP Billiton, which confirmed it has approached the Canadian company, saw its U.S.-listed shares fall $1.51, or 2 percent, to $70.43.

BHP has broadened its potash mining operations in Canada over the past four years. It bought out its Anglo Potash Ltd. joint venture in Canada for $282 million in 2008 and purchased Athabasca Potash Inc. 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.

The offer sent shares of other fertilizer makers jumping. Shares of Mosaic Co. rose $4.86, or 9.5 percent, to $55.99, while CF Industries Holdings Inc. rose $4.08, or 4.8 percent, to $88.67. Intrepid Potash Inc. rose $1.59, or 6.6 percent, to $25.55, and Agrium Inc. climbed $3.50, or 5.3 percent, to $69.37.

No one outpaced Potash, however, which saw shares spike 26 percent, or $30.48, to $147.71.

Associated Press Business Writer Samantha Bomkamp contributed to this report from New York.