BHP Potash Bid Sweetener Said Rejected by Saskatchewan

Saskatchewan rejected an offer of C$370 million ($358 million) of infrastructure investment from BHP Billiton Ltd., which is trying to win support for its $40 billion bid for Potash Corp. of Saskatchewan Inc., according to an e-mail from an official of the Canadian province.

The investment doesn’t come close to offsetting the C$3 billion of revenue Saskatchewan will lose over 10 years should BHP acquire Potash Corp., said the official, who declined to be identified because the talks between BHP and the province are private. BHP is confident it can address the province’s concern it will lose revenue, the company said in an e-mailed statement.

Saskatchewan Premier Brad Wall will set out the province’s official position on the hostile takeover bid in a speech tomorrow, the government said yesterday. Canada has until Nov. 3 to block the $130-a-share bid if it finds it doesn’t provide a “net benefit” to the country, unless BHP agrees to an extension of the review.

“If the local government rejects the deal you will find that will flow through to the national level,” David Lennox, a resource analyst at Fat Prophets in Sydney, said today by phone. “The Canadian government will then probably reject the deal as well. That will be the finish of the deal.”

BHP declined 0.7 percent to A$40.88 at the 4:10 p.m. Sydney close on the Australian stock exchange. Potash yesterday gained 22 cents to $143.43 in New York, a 10 percent premium to BHP’s offer.

Canada’s Industry Minister Tony Clement said last week the federal government is considering all points of view, including that of Saskatchewan. Andrew Dinsmore, a spokesman for the Saskatchewan government, wasn’t immediately available to comment.

Blocking Power

Under the Investment Canada Act, the federal government can block transactions if it finds they don’t provide a “net benefit” to the country. There are “serious questions” as to whether Melbourne-based BHP’s offer meets the criteria of the net-benefit test, Saskatchewan’s Energy and Resources Minister Bill Boyd said this month.

“BHP Billiton is confident it can address this concern and, in this regard, is prepared to make commitments which go beyond the requirements of prevailing Canadian legislation that should effectively address the tax loss concerns of the province,” BHP said in the statement.

Lost Revenue

The Conference Board of Canada, an independent researcher of economic and public policy issues, said Oct. 4 in a report that Potash Corp.’s takeover by BHP would cost Saskatchewan C$2 billion in lost tax revenue over 10 years.

Potash Corp., which is based in Saskatoon, Saskatchewan, has rejected BHP’s offer as too low and said it’s seeking alternative offers amid rising prices for agricultural commodities. Sinochem Group, China’s largest fertilizer trader and cited by analysts as a likely counter bidder, may struggle to get state financial backing for a takeover, two people with knowledge of the matter said Oct. 7.

Saskatchewan has put pressure on BHP to remain committed to Canpotex, an organization that handles potash exports, on concern its exit would reduce the region’s revenue. Canpotex handles exports for Potash Corp., Agrium Inc., and Mosaic Co., which together account for as much as 40 percent of global trade in the nutrient.

BHP, already developing Canada’s Jansen potash project, said in August it prefers to run its mines at full capacity and would seek to sell its potash independently of Canpotex should its bid succeed.

Potash is a form of potassium used by farmers to strengthen stalks and roots and help crops fight disease. Potash Corp. controls 20 percent of global supply, according to the company’s website.

To contact the reporters on this story: Christopher Donville in Vancouver at cjdonville@bloomberg.net; Alexandre Deslongchamps in Ottawa at adeslongchamps@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net;

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