Canada’s Potash files complaint against Australia’s BHP in US court, seeks to block takeover

Potash files complaint against BHP

TORONTO — Potash Corp. of Saskatchewan asked a U.S. court on Wednesday to block a $39 billion hostile takeover by BHP Billiton on the grounds BHP has made “false statements and half-truths” to try to manipulate the perceived value of the Canadian company.

Australia’s BHP Billiton Ltd. launched a hostile $130-per-share takeover bid last month after Potash directors rejected its offer as wholly inadequate. The complaint is the latest defensive move by one of Canada’s largest mining companies and the world’s largest fertilizer company.

Potash’s filing with the U.S. district court for northern Illinois alleges that “because of BHP’s false statements, half-truths, and contradictions” Potash shareholders “lack clear and accurate information about BHP’s intentions and the true value” of its shares.

BHP said in a statement that it believes the lawsuit is “entirely without merit” and that it will contest it. BHP said Potash Corp.’s shareholders “should have the opportunity to decide on the merits of our offer.”

The lawsuit filed by Potash alleges that BHP has violated U.S. securities law by failing to adequately inform shareholders. Potash alleges BHP hasn’t been truthful about its plans to develop its own potash mine in Saskatchewan. Before bidding for Potash Corp. last month, BHP said it was focused on building a massive potash mine in Saskatchewan.

Potash Corp. said BHP only said that so that it could scare investors into thinking BHP could flood the market with potash. Potash Corp. said the real goal was to drive down the stock of a company it wanted to buy.

“By conditioning the market for years to believe that BHP was primed to bring the full force of its worldwide financial and mining power to compete in the potash industry, BHP knew and intended to undermine investor confidence in the potash sector generally and PCS in particular creating an opportunity for BHP to acquire PCS shares for less than their intrinsic value,” the lawsuit states.

Potash noted that BHP made a bid just low enough that it would not trigger a vote by BHP shareholders to approve of the transaction. BHP is required to seek shareholder support for any deal worth 25 percent or more of its market capitalization. According to Potash, BHP’s bid was worth approximately 23 percent of BHP’s market capitalization.

Potash Corp. is Saskatchewan’s largest revenue-generating companies and the province is worried that BHP would operate at full capacity and lower potash prices, leading to less revenue for the province.

BHP CEO Marius Kloppers is in Canada this week to meet with government officials, investors and media in an effort to win support for the bid. Chinese state-owned companies are also interested in making a rival bid.

Canada’s federal government can block a foreign takeover if it’s not a “net benefit” to Canada. Canadian Prime Minister Harper has asked for Saskatchewan Premier Brad Wall’s input.

Wall has said he hasn’t heard anything to convince him that a BHP takeover Potash is a net benefit to his province or Canada.

Shares of Potash were trading down 32 cents to $147.20 in midday trading on the New York Stock Exchange. Potash shares soared to over $230 just before the global recession hit in 2008.

BHP hopes to diversify its assets and profit from rising fertilizer demand in China. BHP has extended the expiration of the bid by one month to Nov. 18.