BHP’s (BHP) hostile takeover bid for the fertiliser giant Potash Corp of Saskatchewan (POT) has awoken markets to the bright future of agriculture companies. BHP is playing into the fact that emerging markets such as China have a long way to increase their consumption of agricultural products, and that with Potash, there’s an opportunity to become a dominant supplier of the fertiliser which helps produces food efficiently.
The Chinese government hasn’t liked the deal at all, and is trying to block it by any means.
According to China Business News (CBN), China’s Ministry of Industry and Information Technology (MIIT), the State Administration for Industry and Commerce (SAIC), and major state-owned fertiliser producer Sinochem have held meetings to discuss the impact of the two deals on the global fertiliser market. And the anti-trust authority under the SAIC is considering a launch of an investigation into the cases.
Reuters also reports that China’s government is trying to coax a major Canadian pension fund to buy Potash instead of BHP. They are just scared of the potential pricing power BHP might exert should it have Potash, given that China has already seen the powerful effects of pricing power in the iron ore market (dominated by BHP, Rio Tinto (RTP), and Vale (VALE)).
China’s efforts to block the deal will be a thorn in the side of BHP, but for market observers, and anyone in the agricultural space, its a comforting confirmation of the bright future for agricultural companies thanks to China’s future demand needs and scarcity of arable land. (China has one of the lowest ratios of arable land per person in the world)
So while it’s still possible for BHP to overpay for its Potash acquisition (even good business combinations have their price), China’s attempts to block any BHP/Potash tie-up from happening only make the deal look smarter. They also make Potash peers, such as Mosaic (MOS), even more confident in their future.
Let’s just hope BHP doesn’t pay out the nose for POT, now see 10 Other Agriculture Plays Which Could Become Takeover Targets >