BY Euan Rocha
TORONTO (Reuters) - BHP Billiton launched an unsolicited $38.6 billion bid for Potash Corp in a proposal that would make the Australian mining giant the world's leading fertilizer supplier.
The acquisition offer -- the largest of the year in any industry -- was immediately branded by Potash Corp of Saskatchewan as "grossly inadequate," though the Canadian 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 $143.60 on Tuesday, 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.
BHP, already one of the world's largest mining companies, is looking to capitalize on a resurgence in the global fertilizer industry following a collapse in demand during the global economic slowdown. Potash Corp currently ranks as the No.1 global supplier.
The steady rise in demand for crop nutrients like potash over the past year is expected to accelerate as the world's population grows.
For that reason, the 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 the three of the world's largest mining companies.
"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.
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.
STRATEGIC SHIFT
Until the bid on Tuesday, BHP has been planning on developing its own potash supply from Western Canada saying in June its flagship potash project, Jansen, would begin production of the fertilizer in 2015.
Three months earlier, a year-long 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's offer of $130 in cash for each share of Potash 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, touched in mid-2008.
Potash Corp shares were up 26 percent at $141.25 in New York by early Tuesday afternoon.
Shares of rival fertilizer producers also rose. Germany's K+S were up 5.7 percent, while those of Norway's Yara rose 5.9 percent. Shares of North American rivals Mosaic Co and Agrium Inc jumped as well.
"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 Potash Corp," 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 Potash Corp is poised to create."
The company has 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.
After Potash Corp's rejection of the offer, BHP said it is reviewing its options and it will make a further announcement in due course. Its shares closed 2.4 percent lower at 1916 pence on the London Stock Exchange.
"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.
(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)
