BHP's $39bn bid for Potash Corp interests investors
BHP Billiton's $39bn (€30bn) approach to Potash Corp of Saskatchewan, revealed yesterday, highlights the interest that the fertiliser industry has generated among commodities investors and producers over the past two years.
The fertiliser sector is currently the subject of rapid consolidation. Companies are keen to exploit an expected increase in food demand from emerging economies like China and India, while potash supply is scarce, with deposits mostly limited to Saskatchewan province in Canada, Kazakhstan and Brazil.
In January this year, BHP signalled its increasing interest in the potash industry when it acquired Athabasca, a small-scale potash developer, amid long-standing speculation that it would make a bigger bid for Potash Corp or rival Mosaic. The acquisition was notable as virtually the only acquisition BHP made during the downturn, even though it carries a sizeable chunk of cash on its balance sheet.
BHP's strategy was to unite Athabasca's deposits in Canada with its own early-stage potash project nearby and grow its way gradually to a leading position in the industry over five or 10 years. The approach on Potash Corp marks a U-turn in this strategy.
A bid had been awaited after potash prices fell from a record high last year, prompting speculation that BHP, the world's largest mining company, may move to acquire Potash Corp.
Bill Doyle, chief executive officer of the Canadian company, said in May that BHP would be more likely to buy a potash producer than rely on developing its own supply. BHP CEO Marius Kloppers said last August BHP earmarked "billions of dollars" for its Jansen potash project in Canada, which is near Potash Corp's mines.
Potash Corp supplies agricultural and industrial clients with potash, which describes a variety of potassium-bearing minerals used in fertilisers.
"It is a world-class franchise, there's no question about that," JPMorgan Chase's Ian Henderson, manager of $7bn in natural-resource assets including BHP shares, said by telephone from London.
"It is certainly affordable for BHP. It gives some of the marketing know-how that possibly BHP doesn't have for its existing potash operations in Canada."
The company was valued at $33.3bn as of yesterday's closing price.