BHP’s bid for Potash Corp. blocked (November 15, 2010)

VANCOUVER — The Canadian government has rejected BHP Billiton’s (BHP-N) US$39-billion hostile takeover bid for Potash Corp. of Saskatchewan (POT-T, POT-N).

Industry Minister Tony Clement made the announcement in Ottawa after market close on Nov. 3, stating that the deal did not represent a net benefit to Canadians.

Clement qualified his announcement by saying that BHP had 30 days to improve its offer before a final decision would be made, adding that by law he was not able to explain the rational for blocking the deal until the process was finalized.

The chances of reversing the decision, however, diminished somewhat after Agricultural Minister Gerry Ritz described Potash Corp.’s assets as a “strategic resource” in the House of Commons on Nov. 4, the day after the announcement.

In a brief press release, BHP responded by stating it was “disappointed, but continues to believe that the offer is of net benefit to Saskatchewan, New Brunswick and Canada.” The company further stated that it will review its options and continue to cooperate with Industry Canada and the minister.

Saskatchewan Premier Brad Wall has been a vocal opponent of the deal, arguing the province stands to lose control of a strategic resource, as well as billions of dollars in royalty and tax revenue. The province is currently responsible for roughly 53% of the world’s potash production.

New Brunswick Premier David Alward expressed concerns about the deal, which could threaten the development of Potash Corp.’s US$1.6-billion Picadilly mine in the province. The governments of Alberta, Quebec and Manitoba have also voiced opposition.

Were the deal to fall through, it would be another significant setback for BHP’s expansion plans. In October a proposed joint venture with Rio Tinto (RTP-N, RIO-L) to develop both companies’ Western Australian iron ore assets was blocked by regulators, while a hostile bid to acquire Rio Tinto itself collapsed two years ago at a write-down cost of US$285 million.

For its part, Potash Corp. reiterated that the US$130-per-share offer is “wholly inadequate” and its board of directors recommends shareholders reject the deal. The board has been actively seeking other offers though none have yet materialized.

The company’s stock fell $4.78 to $141.43 apiece, on Nov. 4, but still above BHP’s bid price.

Clement’s decision marks only the second time a foreign takeover bid was rejected since the Investment Canada Act was established in 1985, with the other being a high-tech firm.

In recent years, Canada has seen several high-profile foreign takeovers of Canadian mining companies, including Inco, Alcan, Dofasco, Falconbridge, Algoma Steel and Stelco, some with bitter aftermaths.