Under U.K. listing rules enforced by the Financial Services Authority, a shareholder vote may be triggered if the value of an offer exceeds 25 percent of a purchaser’s market worth, according to the FSA regulation handbook on its website.
Potash Corp. Chief Executive Officer Bill Doyle rejected BHP’s $130-a-share offer, describing it as “grossly inadequate.” BHP could afford to pay as much as $180 a share for the world’s biggest fertilizer maker, Morgan Stanley wrote in a report today.
“It seems likely that a shareholder vote will be required,” said Olivia Ker, a London-based analyst at UBS AG.
“BHP knows what the rules are and are unlikely to be concerned about it,” Ker said. “It’s a health warning on value and gives the shareholders more of a voice.”
BHP’s offer was equal to about 21.4 percent of its market value the day before announcing the bid on Aug. 18, according to data compiled by Bloomberg. Under FSA guidelines, should BHP choose to raise its offer, the company’s market value would be recalculated from the day before the new bid.
BHP shares have dropped 8 percent since Potash Corp. said on Aug. 17 it had received a $130-a-share takeover proposal from BHP. “The offer isn’t subject to a shareholder vote,” Illtud Harri, a London-based spokesman for BHP, said by phone, declining to comment further.
Gross Capital Test
A jump in Potash Corp.’s market capitalization since the offer, which suggests investors expect a higher bid, means the company’s value has exceeded a quarter of BHP’s worth since Aug. 20, according to Bloomberg calculations.
A higher bid of $145 a share would likely breach the FSA’s so-called consideration test, one of four of the regulator’s key tests to determine whether a deal needs shareholder approval, Citigroup Inc. said in a report on Aug. 19.
A bid at that price would also breach another of the tests, the so-called gross capital test, which measures the enterprise value of the target company versus the acquirer, Citigroup said.
If a shareholder vote is required, BHP would need to call an extraordinary general meeting for shareholders of both its London-listed and Sydney-listed stock, UBS’s Ker said. The threshold for an approval vote would be 50 percent, she said.