Sinochem Group, China’s largest fertilizer trader, has emerged as the likeliest bidder to rival BHP Billiton Ltd.’s $40 billion offer for Potash Corp. of Saskatchewan Inc., three people familiar with the matter said.
Chinese authorities chose Sinochem as the country’s potential bidder and are allowing the Beijing-based company to begin piecing together an offer that would likely involve taking a majority stake in Potash Corp., the people said. Sinochem would prefer to involve Canadian pension funds or other Canadian investors to create more support for an offer, said the people, who asked to remain anonymous because the talks are private.
Potash Corp., the world’s largest producer of its namesake crop nutrient, last month rejected Melbourne-based BHP’s $130-a- share bid as too low and said it’s seeking other offers. A bid by state-controlled Sinochem would indicate China’s desire to stop BHP, the world’s largest mining company, from controlling more commodity supplies to the country.
“The main issue is how to ensure this could be a good investment with reasonable returns as the potash cycle has bottomed out,” said He Wei, an analyst at BOCOM International Holding Co. by phone from Beijing. “Potash is a strategic asset to China.”
The board, management and advisers of Saskatoon, Saskatchewan-based Potash Corp. determined Sinochem will probably be the only other bidder, said one of the people. Potash Corp.’s advisers have been in regular contact with Sinochem’s advisers, which include Citigroup Inc. and Deutsche Bank AG, the people said.
Bill Johnson, a spokesman for Potash Corp. in Saskatoon, declined to comment. Li Qiang, spokesman for Sinochem, wasn’t immediately available. Calls to the Ministry of Commerce and the National Development and Reform Commission, the Chinese ministries involved in approving the deal, weren’t answered.
By including Canadian investors, Sinochem may have a better chance of approval by Canadian regulators than previous attempts by Chinese state-owned groups to buy foreign companies. Cnooc Ltd., China’s biggest offshore energy producer, abandoned its $18.5 billion bid for Unocal Corp. in 2005 after opposition from U.S. lawmakers.
A Sinochem bid would “be a test of how open Canada really is for investments,” said Saxon Nicholls, a fund manager at Herschel Asset Management Ltd. in Melbourne who helps oversee $785 million.
While both companies’ advisers have been in talks, the two sides haven’t discussed at length either valuations or the exact structure for a potential deal, said one of the people. Nor have both sides discussed specific parties that would take a minority stake in Potash Corp. as part of a deal, the person said.
While Potash Corp. hasn’t given Sinochem a timeline in which to get a deal done, the Chinese company still has a few weeks to line up financing and partners, the people said.
Potash Corp. shares closed at $146 in New York Stock Exchange composite trading on Sept. 24, indicating investors expect a bid higher than BHP’s.
The Australian company’s offer may not proceed because it’s unlikely to overpay and there’s little chance that a competitor may emerge, Citigroup analysts led by London-based Heath Jansen said in a Sept. 20 report.
A Chinese offer would have to overcome the objections of Saskatchewan Energy and Resources Minister Bill Boyd who said Sept. 2 that offers by state-owned enterprises wouldn’t be in the interest of the Canadian province.
Rivals Stay Away
Alberta Investment Management Corp., the $66 billion Canadian pension fund known as AIMCo, said Sept. 3 it isn’t interested in an offer for Potash Corp. after Chief Executive Officer Leo de Bever said unidentified Chinese investors had approached it about joining a bid.
Sinochem is listed as a key state-owned company under China’s State-Owned Assets Supervision and Administration Commission of the State Council. It is China’s biggest chemicals trader, fourth-largest oil company, and also has interests in real estate and finance, according to its website.
Potash has watched in recent weeks as one after another of the world’s biggest mining companies have distanced themselves from a bid.
Asked about buying Potash Corp. in an Aug. 26 interview in Brisbane, Tom Albanese, the CEO of Rio Tinto Group, the world’s third-largest mining company, said, “our first priority is organic growth.” Analysts at UBS AG who met with him about the same time said he is focused on smaller-sized acquisitions.
Brazil’s Vale SA, the world’s largest iron ore producer, said last month it wasn’t pursuing a bid for a fertilizer company and that it would invest $12 billion by 2014 to boost its own output of the nutrient.
And at Teck Resources Ltd., Canada’s largest diversified mining company, Senior Vice President Ronald Vance said at a conference this month that Potash is “not something we’ve spent a lot of time thinking about, frankly.”
Teck last year sold a 17 percent stake to China Investment Corp., a sovereign wealth fund.