BHP Billiton is focusing on getting regulatory approval for its $39 billion hostile bid for Potash Corp before trying in earnest to win over the Canadian company's shareholders, a source said on Thursday.
BHP, the world's largest miner, is betting the absence of any rival offers will sway Potash Corp [POT 147.93 4.76 (+3.32%) ] investors to support its bid, said the source familiar with the situation.
"At that point -- if there has been no higher bid, and they don't think there will be -- if they have regulatory approvals and they don't manage to get another bid up, his (Potash chief Bill Doyle) leverage is reduced," said the source, who was not authorized to speak publicly and declined to be identified.
"It is early days. This is a bit of a slow motion race."
BHP aims to vault to the top of a rebounding fertilizer industry, which suffered during the global economic crisis, through the world's largest takeover offer this year.
The deal would give it 20 percent of the global market for potash, critical for boosting crop yields as global populations grow and the amount of arable land available shrinks.
Loan Deal Approval Sought
BHP was preparing to file details of its $40 billion loan to finance the deal with the U.S. Securities and Exchange Commission as a first step in clearing regulatory hurdles for its bid, said the source.
BHP declined to comment. After a big splash on Wednesday when it announced it was taking its bid direct to shareholders, the BHP camp has gone quiet.
BHP chief executive Marius Kloppers was expected to spearhead efforts to charm Potash investors into accepting the bid. It was unclear Thursday whether that process had started although Kloppers was expected to focus on releasing the company's full-year results in London next week.
The mood in the BHP camp was relaxed, according to a person familiar with the situation, with the miner confident it would be able to convince Potash shareholders to accept despite early indications many were underwhelmed by the $130-a-share offer.
"Were they being cheeky? Were they being cheap? Were they being strategic? To tell you the truth, there is an element to all of that in the offer," according to one investment banker who was not working on BHP's bid.
Dominant Position
Potash argues the bid doesn't take into account its position as the world's largest and lowest cost producer of the fertilizer at a time when the market is rebounding.
Potash commanded more than $1,000 a tonne during the commodity boom of 2007-08, pushing Potash Corp shares above $241. It has since fallen to about $350 to $375 a tonne levels.
Still, potash demand is expected to climb steadily as incomes rise in China, India and other emerging economies, and their population growth accelerates.
That will put pressure on farmers to grow higher quality food and increase crop yields.
"The only thing for certain is that there will be something like 9.5 billion people in the world by 2050 that will need to be fed," said Nick Drew, executive director of the Fertilizer Industry Federation of Australia. That's up from 6.8 billion people at present.
"There's going to a high degree of intensification of agriculture and depending on how supply and demand balances up, the demand for inputs for agriculture is absolutely going to increase," said Drew.
BHP's Australian-listed shares fell 0.8 percent to A$38.10 on Thursday. The stock fell about 4 percent the previous session after Potash announced it had rejected the miner's offer.
Potash Corp's New York-listed shares closed at $147.93 on Wednesday, 17 percent above BHP's bid -- an unusually large premium to the offer, indicating Potash investors are convinced an higher offer is coming.
Potash's directors put a poison pill in place to fend off BHP, while leaving the door open for a higher bid.
Investors were sanguine about BHP's big move into potash, even if it had to increase its bid to grow big in a soft commodity with a completely different end market than its metals, iron ore and petroleum arms.
"They'll have to pay more, but, look, BHP's well cashed up," said Stephen Bartrop, portfolio manager at Limestreet Capital, which owns BHP shares.
He said for a company as large as BHP, it was hard to find major assets with attractive fundamentals that would make a difference to its portfolio, and Potash Corp fit the bill.
"While you might see some softness around (BHP's) share price, and clearly hedge funds will play a game, at the end of the day it's the right type of acquisition that BHP should be looking at. And they're very few and far between," Bartrop said.
The offer is conditional on 50 percent shareholder approval and U.S. and Canadian foreign investment and competition approvals. The offer opened Thursday and expires on October 19.
Even if BHP raised its offer, which it can do under the current approach more easily than an Australian-style scheme of arrangement, it would not change the October 19 deadline, a source said.
While Potash Corp may have time on its side, it could struggle to find a viable alternative to BHP's bid, given the huge size of any potential deal, investment bankers said.
BHP rivals such as Brazil's Vale [VALE 28.87 0.21 (+0.73%) ] would find it difficult to match the firepower of BHP's estimated $11 billion cash pile. However, there was the possibility of consortium deals, one banker said Thursday.
"The company is in play. The focus is on them and everyone will be looking," the banker said.
Copyright 2010 Reuters.
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