By Euan Rocha
TORONTO (Reuters) - BHP Billiton launched an unsolicited $38.6 billion takeover bid for Potash Corp, an offer that the world's largest fertilizer maker promptly rejected on Tuesday as "grossly inadequate."
The bid reflects the Anglo-Australian mining giant's desire to capitalize on a resurgence in the global fertilizer industry following a collapse in demand during the global economic slowdown.
A steady rise in demand for crop nutrients like potash is expected to accelerate as the world's population grows. The sector has emerged as a hotbed of acquisitions over the past year, with consolidation in both North America and Russia.
"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 the three of the world's largest mining companies.
BHP's offer for Potash Corp is the biggest yet within the sector. Potash Corp's capacity, concentrated in the Canadian Prairie province of Saskatchewan is the world's largest.
Investors signaled that the bid would rise. Shares of Potash Corp jumped 26 percent in early trade to $142.10 on the New York Stock Exchange, well above the $130 offer price. The shares in Toronto rose 25 percent at C$146.80.
"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 Gulley, who believes that Potash Corp could attract rival bids from mining giants Rio Tinto and Vale.
Shares of rival fertilizer producers also rose. Shares of Germany's K+S were up 6 percent, while those of Norway's Yara rose 5.8 percent. Shares of North American rivals Mosaic Co and Agrium Inc also jumped in early trade.
In June, BHP Billiton said it sees potash as an ideal fit within its portfolio of commodity products and is focused on developing its potash projects in Western Canada into a world-class basin play.
Three months earlier, a nearly year-long four-way takeover battle involving four North American producers -- Agrium, Yara, CF Industries and Terra Industries -- culminated with CF's acquisition of Terra Industries.
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.
Kremlim-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.
BHP OFFER
BHP offered $130 per share in cash for each share of Potash. That is only a premium of 16 percent to its Monday closing 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, which it touched in mid-2008.
Potash Corp said in a statement that the BHP proposal substantially undervalues the company.
"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," said Potash Corp Chief Executive Bill Doyle.
The company has adopted a shareholder rights plan to guard against any hostile moves and said it was not in the best interests to enter talks with BHP.
Potash Corp, which set the trigger at 20 percent under the rights plan, said the board authorized the issuance of one share purchase right for each common share of Potash Corp outstanding as of the close of business on August 16.
"We believe the timing of the BHP proposal is highly opportunistic and is an ill-disguised attempt to exploit an anomaly in the equity market valuation of PotashCorp," said Doyle.
"In fact, we believe that BHP intentionally launched its proposal just as the fertilizer industry is emerging from an unprecedented demand decline associated with the severe global downturn in order to seize the value that PotashCorp is poised to create," he added.
BHP said it continues to review its options and it will make a further announcement in due course. BHP shares were 1.4 percent lower on the London Stock Exchange at 1934 pence.
"Given POT's unanimous rejection of BHP's offer, we believe this could be a long battle with a higher offer likely to emerge," said Citigroup analyst P.J. Juvekar, in a note to clients.
BofA Merrill Lynch, Goldman, Sachs & Co. and RBC Capital Markets are acting as financial advisers to Potash Corp, and Jones Day and Stikeman Elliott are acting as its legal advisers.
(Reporting by Matt Daily, Ernest Scheyder and Michael Erman In New York, Bhaswati Mukhopadhyay in Bangalore and John Bowker in Moscow; editing by Frank McGurty and Janet Guttsman)
