BHP Billiton to take bid for Potash directly to shareholders

TORONTO - Australian mining giant BHP Billiton will take its US$38.6-billion cash offer for PotashCorp directly to shareholders of the Saskatchewan-based company, after being rejected by its board of directors and management.

The move comes a day after the fertilizer company's chief called BHP Billiton's hostile takeover bid "aggressive," "beyond opportunistic" and suggesting the offer of US$130 per share would be a steal.

In a statement on the BHP Billiton website Wednesday, chairman Jac Nasser said the company believes PotashCorp (TSX:POT) shareholders will like the BHP offer.

"We firmly believe that PotashCorp shareholders will find the certainty of a cash offer, at a premium of 32 per cent... very attractive."

The premium referred to PotashCorp's stock price before BHP's offer was made public. Since then, the Canadian company's shares risen well above the bid price, eliminating the premium, on the expectation that a higher bid will emerge.

BHP Billiton also said Wednesday it plans to maintain current job levels at PotashCorp's Saskatchewan and New Brunswick operations "for the foreseeable future."

Marius Kloppers, BHP's chief executive officer, told analysts Wednesday that PotashCorp would be operated in a manner that's consistent with the company's overall philosophy.

"Our basic philosophy is to run our assets at full capacity and take the market prices, which effectively means that we maintain full employment throughout the cycle. Also, continuing our investment programs throughout the cycle."

BHP deploys between $10 billion and $15 billion a year on new capital projects in its various businesses, including about $1 billion that has been spent so far on the Jansen startup potash project in Saskatchewan.

"We hope that it will become evident that testing that project with a view to getting it to market is an important part of our strategy," Kloppers said.

"Rather than look at this (bid) as a change in strategy, you should look at the acquisition of PotashCorp as an attractive opportunity for us, also for the PCS shareholders, that is in addition to the activities that we've been conducting to date."

As for whether BHP Billiton may offer more for PotashCorp, Kloppers noted that BHP has the only offer on the table and suggested it would be a tough one to beat.

"It is a large transaction and, particularly, I do point at the fact that it's all cash in our case. With markets being volatile, that is a different value proposition to somebody that may offer some other mix of consideration."

Kloppers didn't elaborate on what he meant by "some other mix of consideration" but theoretically a rival might offer to pay in shares, with promises that investors can benefit from the potential growth of the post-deal company, or some form of debt that provides interest payments or a combination of cash, debt and stock.

"Importantly, apart from just the shareholders, we are long-standing good citizens in Canada with a long track record of excellent achievement in things like aboriginal employment, communities, environment and the way we do things," Kloppers said.

Among BHP's holdings is the Ekati diamond mine, 310 kilometres northeast of Yellowknife. It also bought Athabasca Potash Inc. earlier this year.

BHP said a submission to Investment Canada would include an intention to base the president and management of the Canadian potash operations in Saskatchewan.

The company also intends to propose a Canadian nominee to sit on the BHP Billiton board.

The Saskatchewan government said Tuesday that any company that might be interested in taking over PotashCorp will have to keep its home in the province. Provincial legislation dictates that PotashCorp shall maintain its head office in Saskatchewan and Energy and Resources Minister Bill Boyd said there is no plan to repeal the law.

PotashCorp denounced the bid early Tuesday as far too low to form the basis of serious negotiations but added it wouldn't shy away from a deal if the price is right.

Kloppers said it's impossible to say whether another offer will come forward but added he sees the all-cash offer as a "full" price, noting it would take two years to be "accretive" to BHP or, in other words, the Australian company estimates it won't start making money on the purchase for two years..

Shares in PotashCorp gained nearly 26 per cent in Toronto during Tuesday's session, and continued to rise after BHP's conference call. The Canadian company's stock was at C$151.36, up $4.02 from Tuesday's close in Toronto, In New York, PotashCorp share traded at US$147.28, up $4.10 early Wednesday.

Shares in BHP Billiton slumped 3.5 per cent in early trading on the Australian Securities Exchange to A$38.42. In New York, BHP's American Deposit Receipts -- a stock substitute for foreign companies -- fell $1.62 to US$68.59.