By Eric Onstad and Pav Jordan
LONDON/TORONTO (Reuters) - A Chinese-led consortium with touches of Canadiana is being mobilized to buy Potash Corp, a newspaper said on Thursday, presenting what bankers see as the most likely scenario yet for a rival bid for one of the last great jewels of Canadian resources.
Canada's Globe and Mail newspaper said Potash Corp, which is fighting off a $39 billion takeover bid from BHP Billiton, is trying to stitch together a consortium that would also include sovereign wealth funds and perhaps Canadian pension funds in a management buyout.
Potash Corp has been looking for a white knight since BHP launched its bid a month ago, and Chinese worries about BHP getting control over the market for a key crop nutrient have spawned talk that China would try to block BHP.
The BHP bid would be the largest takeover of the year to date and would give BHP a significant role in determining the price of potash, which is used in fertilizer.
The Globe and Mail cited unnamed sources as saying that the rival bid would include a big element of capital from a Chinese resource company or investment fund, with smaller contributions from other investors.
"That doesn't seem outrageous to me," said a banker who is not involved in the deal.
"If China is smart, and I think they are, since they can't buy 100 percent, they get into something that looks and feels like Canadian, with Chinese backing to get something done. It's not too far off."
A source close to the matter was cautious, but said the scenario was not inconceivable.
"There are a relatively limited number of possibilities available in a situation like this," said the source.
Canadian Agriculture Minister Gerry Ritz said a Chinese-led LBO would face the same regulatory scrutiny as any other offer.
Institutions such as the Canada Pension Plan Investment Board, with C$130 billion in assets under management, and Ontario Teachers' Pension Plan, have for years been active investors abroad, working with sovereign wealth funds or investing on their own in assets from Europe to South America to Asia.
The funds have not commented on the Potash deal.
The Globe also said rival potash producer Mosaic Co could be part of the consortium.
"It is a viable option," the source told the Globe, adding that it was tough to put together a structure for the consortium and that other options were still possible.
"It is still a big check to write ... and it is a challenge to manage multiple parties," the source said.
Potash Corp officials declined to comment on the report.
UNLIKELY CONSORTIUM
Analyst Tom Gidley-Kitchin at Charles Stanley in London said such a consortium would be unwieldy since China, the world's top potash consumer, would want to keep a lid on potash prices while other investors would want maximum profits.
"Everyone else who might come into a consortium like that if they weren't Chinese would be certainly interested in maximizing returns and doing everything that BHP would be doing," he said.
"I do think that local regulators (in Canada) would certainly be asking themselves why the Chinese were getting involved here. China would be taking quite a risk in getting involved in something like this if there was a significant possibility that regulators would stop it."
Canadian bankers said there was little evidence of the scenario playing out right now, and suggested it might have been floated to gauge market reaction.
"This is one of the regular steps you'd go through in a hostile defense -- to put out as many options into the public as possible to move up the share price," said another banker who was not working on the deal. "It's a tactic at this point, that's my view."
The deadline for BHP's offer is October 19, but the company needs clearance from regulators before it goes ahead.
Potash Corp shares in New York were at $148.40 near midday on Thursday, 14 percent higher than BHP's cash offer of $130 per share.
BHP shares fell 1 percent to 1962 pence in London.
(Additional reporting by Sonali Paul, Euan Rocha, Michael Erman and Rod Nickel; editing by Peter Galloway)
