Potash Corp criticizes government report that says BHP takeover would have few consequences

Potash Corp criticizes government report

TORONTO — Potash Corp. on Tuesday criticized a report commissioned by Saskatchewan’s government, saying it understates the loss of tax revenue if BHP’s hostile takeover of the company succeeds.

Australia’s BHP Billiton Ltd. launched a $39 billion takeover bid in August for the world’s largest fertilizer company after Potash directors rejected its offer.

The Conference Board of Canada, an independent think tank hired by the government to detail the pros and cons of a BHP takeover, said Monday BHP’s bid would have few negative effects but could reduce the government’s revenues by at least $2 billion over the next 10 years.

The report also favors a BHP bid over a possible rival bid by a Chinese state-owned company, calling a possible bid by China’s Sinochem riskier for the province because Sinochem would be interested in running potash mines at full capacity so it could obtain potash for China for the lowest possible price.

In response, Potash Corp. slammed the report for speculating, and said the province should remain open to other bids.

“The Board of Directors of PotashCorp would encourage the Government of Saskatchewan to continue to remain open to reviewing alternative bids on a fact-based approach, rather than the speculative approach taken by The Conference Board of Canada’s report,” the company said in a regulatory filing on Tuesday.

The report said BHP is not likely to run its mines at full capacity because it would mean less profit. Potash Corp. said the report “understates” the loss in tax revenue because it “chose to assume that BHP would not operate full out in direct contradiction of previous BHP public statements.”

The Saskatchewan government has said it is worried that BHP would operate at full capacity and lower potash prices, leading to less revenue for the province. The province doesn’t want BHP to pull out of the Canpotex potash marketing cartel if it gets the company. BHP has said it will pull out of Canpotex.

Canpotex represents Saskatchewan’s three largest potash producers in sales of potash outside North America. The cartel balances supply with demand to protect price. The Conference Board of Canada dismissed concerns that pulling out of Canpotex would hurt the province’s profit-based tax and royalty regime, saying Canpotex’s influence has been “overstated.”

Canada’s federal government can block a foreign takeover if it’s not a “net benefit” to Canada. The federal government has asked for input from the Saskatchewan government, which hired The Conference Board of Canada to produce a report that it will use to help make a recommendation to the federal government.

The report is quite favorable to BHP’s bid, but Saskatchewan Energy and Resources Minister Bill Boyd told The Associated Press that the potential loss of tax and royality revenue is of “great concern.”

Boyd said they will study the report further, talk to the industry players and provide a recommendation to the federal government later this month or early next month. Federal Industry Minister Tony Clement extended Monday the deadline to review the takeover by an additional 30 days, promising a thorough review.

The Conference Board of Canada report said the recent history of federally approved foreign acquisitions in mining suggests that BHP’s bid is unlikely to be rejected. It cautions against Saskatchewan formally opposing the takeover bid.

Potash has called BHP’s $130 a share offer wholly inadequate. Shares of Potash fell $1.04 to $143.01 on the New York Stock Exchange. Potash shares had soared to over $230 just before the global recession hit in 2008.

Saskatchewan has over half the world’s reserves of potash and Potash Corp. is one of the province’s largest revenue-generating companies, accounting for 15 percent of its budget as recently as two years ago. The provincial government collects royalties from the resource.

China has expressed unease that a BHP takeover of Potash might create a “potash monopoly” that would boost prices and hurt China, a major importer of the mineral used in fertilizer.

BHP Billiton, the world’s largest mining company, is hoping to profit from what it expects will be rising fertilizer demand in China and India.