Potash Corp rejects BHP Billiton's $39 bln bid

TORONTO (Reuters) - Canada's Potash Corp spurned an unsolicited $38.6 billion takeover offer by BHP Billiton, raising the prospect that the Anglo-Australian miner could launch a hostile bid to take the top position in the global fertilizer industry.

The offer -- the biggest of the year in any industry -- was dismissed by Potash Corp as "grossly inadequate," though the company said it might consider a more attractive proposition.

Investors, anticipating that BHP's $130-a-share offer would eventually rise, pushed Potash Corp's New York-traded shares to as high as $144.40, well above the bid price.

"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 Corp Chief Executive Bill Doyle said on a conference call shortly after Potash Corp revealed the offer.

Doyle's stance is likely to test the determination of BHP CEO Marius Kloppers -- who presented the offer to him on Friday in Chicago -- to make BHP the leader of a new mining segment.

Analysts and investment bankers said they expected BHP to make a higher bid. "They are certainly not going to make one offer and walk away if it's rejected," said Canaccord Genuity analyst Damien Hackett.

Potash Corp launched a shareholders rights plan that would make it more expensive to acquire the company.

Already one of the world's largest miners, BHP is looking to capitalize on a resurgence in the global fertilizer industry following a collapse in demand during the global economic slowdown. Potash Corp is the No.1 global supplier.

"They've chosen a point where Potash Corp stocks are trading at a very low level...and grain prices globally are lifting. And with that, fertilizer demand is picking up," said Patricia Mohr, vice-president of Scotiabank Group, an economics and commodity market specialist.

CONSOLIDATION

The steady rise in demand for crop nutrients like potash over the past year is expected to accelerate as the world's population grows.

With the rebound in demand, the fertilizer sector has emerged as a hotbed of acquisitions over the past year in North America and Russia, garnering the attention of the mining industry's biggest players.

"The offer is not surprising given the speculation surrounding BHP, Vale and Rio Tinto having keen interest in the fertilizer industry," said Soleil Securities analyst Mark Gulley, referring to three of the world's largest mining companies.

Three months ago, a year-long takeover battle involving four producers -- Agrium Inc, Yara International, CF Industries and Terra Industries -- culminated with CF's acquisition of Terra.

In Europe, Russia is now consolidating its potash industry into a single national champion that would rank as the world's second biggest producer behind Potash Corp.

Kremlin-backed billionaire Suleiman Kerimov has bought more than 50 percent of Russian potash giants Uralkali and Silvinit with some business allies. Market sources expect the state to support a merger between the two.

Under Kloppers, who was appointed CEO in 2007, BHP steadily increased its holdings in Saskatchewan's potash belt.

The company has acquired exploration lands and submitted plans for the Jansen project, the province's first new potash mine in 40 years.

BHP hasn't said if that project will go ahead should it acquire Potash Corp, but its target has long considered the project little more than a precursor to a bid.

"The Jansen project has been a smokescreen, a charade so to speak," Doyle said. "We clearly saw through it."

"WAY TOO LOW"

Potash Corp has six mines in Saskatchewan and one in New Brunswick. It also has seven phosphate and three nitrogen operations in the United States, along with a phosphate operation in Trinidad and equity stakes in fertilizer companies in China, Israel, Jordan and Peru.

"The initial offer is way too low for change of control of the global leader ... And we view the board's rejection as appropriate," said Soleil's Gulley, who believes that Potash Corp could attract rival bids from Rio Tinto and Vale.

At least one major shareholder rejected the bid outright.

Jarislowsky Fraser, the fourth-largest holder of Potash Corp stock according to Thomson Reuters data, branded the offer as inadequate.

"We think the price is not sufficient. We are on the same wavelength as management. It undervalues the assets," said Denis Durand, a partner at Jarislowsky Fraser, which holds about 8.8 million shares.

BHP's offer of $130 in cash for each share of Potash is only a premium of 16 percent to the Monday closing price of $112.15 on the New York Stock Exchange.

BHP's bid is richer than Potash Corp's 52-week high of $128.42, but well below the company's all-time-high of more than $240 a share, touched in mid-2008. Potash Corp shares closed up 28 percent at $143.17 in New York.

The company adopted a shareholder rights plan to guard against any hostile moves and said it was not in the best interests of shareholders to enter talks with BHP.

The rights plan, designed to make it prohibitively expensive to buy the company, would kick in if any one shareholder acquired more than 20 percent.

It would give shareholders the right to buy one additional share at a discount for each they already owned as of the close of business on August 16.

Shares of other fertilizer producers also rose. Mosaic Inc rallied 8.74 percent in New York while Agrium gained 3.5 percent in Toronto. In Europe, Germany's K+S rose 5.7 percent and Norway's Yara gained 5.9 percent.

After Potash Corp's rejection of the offer, BHP said it would review its options and make a further announcement in due course. BHP shares closed down 2.4 percent at 1916 pence in London.

BofA Merrill Lynch, Goldman Sachs and RBC Capital Markets are acting as financial advisers to Potash Corp.

(Additional reporting by Scott Haggett in Calgary, Nicole Mordant in Vancouver, Matt Daily, Ernest Scheyder and Michael Erman In New York, Bhaswati Mukhopadhyay in Bangalore and John Bowker in Moscow; Editing by Frank McGurty and Ted Kerr)