BHP Biliton’s big bid for Potash (of Saskatchewon) looks set for failure for quite a few reasons.
The first is the surging value in the company’s product, potash, and the broader fertiliser market.
From Merril Lynch:
Potash, in particular, has substantive possibility for price growth. Merrill Lynch have four reasons for this price rise.
From Merrill Lynch:
(1) lucrative futures prices for key potash-consuming crops, including corn and soybeans; (2) relatively low selling prices for potash versus other key fertilizers, including ammonia and DAP; (3) consequent prioritization of potash purchases by US dealers in recent weeks, resulting in notable shipment delays; and (4) potential for near-term consolidation in production and marketing among the three Former Soviet Union potash producers.
So food price inflation is going to bleed into potash and other fertilizers, through rising costs that will likely be passed on to consumers as well.
This doesn’t even mention to problem of Canada, standing in the way of BHP’s bid.
Saskatchewon’s Premier is against BHP’s bid and Investment Canada looks likely to say no as well. The two matter because of Canada’s laws that allow the government to reject foreign takeovers if it isn’t a net benefit to Canada.
From CLSA, (empahsis ours):
If Investment Canada says “no” (on or before 4 November, or later), then the deal is off. We would not expect a competing bid (the urgency to submit a bid would clearly be gone), although some other bid, later, might be coming from elsewhere. If the deal is not rejected, we believe BHP will need to come up with a higher offer quickly. We believe a fair price is north of $170, and closer to $190. BHP would need shareowner approval to go that high. Shareowners, in our experience, rarely block deals, so we’ve no reason to think BHP wouldn’t pay up.
Why so high? All of the other agricultural stocks tied to the fertiliser trade have rallied, eliminating the takeover premium from BHP’s bid.
From Morgan Stanley:
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