Tuesday, August 17, 2010

Mining giant BHP makes huge offer for Fertiliser giant

Potash Corporation of Saskatchewan, the world largest fertilizer producer, on Tuesday has rejected a takeover bid of around $39 billion from BHP Billiton. The bid which is reported to have been made, was for $130 per Potash share, which represents a 20% premium on the share price of last week. The offer is believed to have for cash.

According to the Financial Times, the BHP's offer was rejected on the basis that is was grossly inadequate as it undervalues the company. Potash vowed that it will remain independent as it is believed that it has the right to use a poison pill, that will enable shareholder of the target company (in this case Potash) to acquire additional shares in the company after the takeover for a very discounted price. Such right would make the takeover less attractive as increases the price the acquirer has to pay (or suffers dilution).

Potash refused the bid on the belief that the fertilizer industry is just coming out of the recession and hence it is greatly undervalued. It is believed that PotashCorp shareholders could benefit from the current and potential value of the company as Potash is well geared to take advantage of the upturn. The industry is geared to become more consolidated as the further companies in different countries such as Russia and Canada seek to buy competitors to strengthen their market position.

Today BHP announced that it will take the bid to another level as it said it will take the offer directly to shareholders and hence become hostile...let's see how this huge proposed takeover will eventually end