BHP Would Need to Add Output to Justify Higher Potash Bid, Bernstein Says

BHP Billiton Ltd., bidding $40 billion for Potash Corp. of Saskatchewan Inc., would need to plan higher production rates of the crop nutrient to justify raising its $130-a-share offer, Sanford C. Bernstein & Co. said.

“We believe this volume expansion will be the key to achieving acceptable returns on the acquisition, rather than simply relying on higher prices,” Paul Galloway, a London-based analyst at Bernstein, said in a report. “With BHP likely to have to pay higher than $150 a share, we believe BHP must be assuming running Potash Corp. at full capacity and continuing to allocate additional capital” for expansions, he wrote.

Potash Corp., the world’s biggest producer of the mineral, has said it’s in talks with third parties after rejecting BHP’s offer last month. Melbourne-based BHP will likely raise its bid by 20 percent to $156 a share, Bernstein said.

“BHP will sit and wait for news of an alternate bidder and look to stare down Potash Corp.’s shareholders,” Galloway said. The company said yesterday it had approval from antitrust regulators in the U.S. The bid still faces regulatory reviews in Canada.

To contact the reporters on this story: Simon Casey in London at scasey4@bloomberg.net; Jesse Riseborough in London at jriseborough@bloomberg.net.

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