In Surprise Move, Canada Blocks BHP's Potash Bid

(November 3, 2010) — In what would have been the biggest takeover in Canadian history, the Canadian government has provisionally rejected BHP Billiton’s $38.6 billion bid to purchase Potash Corp. of Sashatchewan, reflecting political pressure to guard rich natural resources.

BHP’s proposal has faced strong opposition in Canada. “This is a surprise given the direction this appeared to be going in past few days,” Adam Givertz, a partner at Shearman and Sterling in Toronto, told the Financial Times. “However this confirms what many observers believed which was that the federal government would not approve a deal that the province vehemently opposed.”

Late Wednesday, Canadian Industry Minister Tony Clement announced that BHP’s unsolicited bid for Potash Corp., the world’s leading potash producer, failed to provide a “net benefit” to Canadians. He consequently blocked the deal, with support from the European Union and German cartel office, among other regulatory bodies. According to a statement from BHP — viewed by many industry observers to be better capitalized and better-run than any mining company in the industry — the firm now has 30 days to convince Clement he made the wrong move. BHP must make the case that permitting the large Australian mining company to assume control of the world’s fertilizer market would be in Canada’s best interests, which is unlikely. “Some decisions can only be taken once and there is no turning back — ever,” Clement said in explaining his resistance to OK the deal, the Globe and Mail reported. “Such is the case today.”

“BHP Billiton is disappointed, but continues to believe that the Offer is of net benefit to Saskatchewan, New Brunswick and Canada,” the firm stated in a release. “BHP Billiton will continue to cooperate with the Minister and the Investment Review Division of Industry Canada and will review its options.”

Meanwhile, Potash stated: “The Minister of Industry’s announcement does nothing to change our view that the BHP Billiton $130 per share offer is wholly inadequate. The PotashCorp Board of Directors strongly believes that the offer fails to reflect both the value of PotashCorp’s premier position in a strategically vital industry and the company’s future growth prospects.”

Anglo-Australian BHP, the world’s largest mining company, has not been alone in fighting for Canada’s Potash Corp., the province’s premier employer controlling the prized fertilizer industry, which has long been a success under local management. According to the CEO of the Saskatchewan-based Indigenous Potash Group (IPG), foreign investors from Brazil, China and other countries, as well as various Canadian pension funds have committed $25 billion so far to rival the bid by BHP Billiton for Potash Corp. of Saskatchewan Inc. Alberta’s provincial money manager, for example, headed discussions with some of Canada’s pensions about a plan to maintain the independence of Potash Corp, which involved taking an equity investment of about 30% in the fertilizer supplier to block BHP Billiton’s bid.