Canada Blocks BHP's $40 Billion Bid for Potash Corp.

Canada blocked BHP Billiton Ltd.’s $40 billion hostile bid for Potash Corp. of Saskatchewan Inc., saying a sale of the world’s largest fertilizer company wouldn’t provide a “net benefit” to the country.

BHP has 30 days to appeal, at which point the government will make a final decision, according to a statement read by Industry Minister Tony Clement today in Ottawa. He declined to give additional reasons for his ruling. Potash Corp. dropped 5.1 percent after the close of regular trading in New York.

The decision by Prime Minister Stephen Harper’s government, which has sought to attract foreign investment, marks only the second formal rejection of a takeover in Canada in the past 25 years. The government came under pressure from the province of Saskatchewan, which argued Potash Corp.’s sale would cut jobs and tax revenue and surrender control of an important resource.

“I would have expected BHP to put everything on the table to avoid getting a negative decision,” Mark Nicholson, a Toronto-based lawyer at Cassels Brock & Blackwell who specializes in Canada’s foreign-investment rules, said in an interview. “I doubt they would have kept a big carrot in their pocket to whip it out now. If they do, it better be a whopper.”

Photographer: Patrick Doyle/Bloomberg

Tony Clement, Canada's industry minister. Close

Tony Clement, Canada's industry minister.

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Photographer: Patrick Doyle/Bloomberg

Tony Clement, Canada's industry minister.

BHP is “disappointed” with Canada’s rejection of its bid, will continue to work with the government and will review its options, the company said in a filing. BHP’s bid is still “wholly inadequate,” Potash said in a statement in response to the government’s decision.

Stock Prices

Potash Corp. shares fell 4.9 percent to $138.30 in after- hours trading as of 8 p.m. in New York, higher than the $130-a- share offer from Melbourne-based BHP, the world’s largest mining company. BHP rose 3.1 percent to A$43.96 at 10:27 a.m. in Sydney, the highest in almost six months.

The Australian dollar rose to the strongest in more than six years against its Canadian counterpart after the announcement. The Australian currency climbed to C$1.0183, the most since April 2004.

The cost of protecting BHP bonds from default dropped the most in more than four months. Credit-default fell 15 basis points to 82 basis points as of 9:05 a.m. in Sydney, according to Australia & New Zealand Banking Group Ltd. prices. That’s the biggest drop since June 18 and the lowest level since Aug. 17, prices from data provider CMA show.

The BHP deal would be Canada’s largest takeover since Vivendi SA’s $46.1 billion purchase of Seagram Co. in 2000.

Russian Plan

“Shareholders of Potash Corp. are the main losers in this decision, at least in the short-term,” Chris Damas, a Barrie, Ontario-based analyst with BCMI Research, said in an e-mail. “I don’t believe we should be running to the federal government for protection when someone comes trying to buy our biggest companies.”

Potash Corp. has said it would seek other offers. Russia asked local fertilizer makers to consider a joint bid, according to OAO Acron, the nation’s third-largest producer of nitrogen soil nutrients. Acron told the Russian government it wouldn’t join the plan after receiving a letter from the Industry and Trade Ministry on Nov. 1 proposing a combined bid, Chairman Alexander Popov said today by telephone in Moscow.

Under the Investment Canada Act, the federal government can block any transaction valued at C$299 million ($296 million) or more if it finds the deal doesn’t provide a “net benefit” to the country.

1,637 Approvals

Canada has reviewed and approved 1,637 applications between June 30, 1985, the year the legislation was enacted, and Sept. 30 this year, according to government data. The other deal to be rejected was Alliant Techsystems Inc.’s 2008 bid for MacDonald Dettwiler & Associates Ltd.’s space business.

BHP has taken out full-page advertisements in newspapers to argue its case. The company said it would make Saskatchewan home to its head office for potash operations, continue developing its C$12 billion Jansen potash mining project in the province, maintain current employment levels and propose a Canadian nominee for election to its board.

BHP also offered Saskatchewan a “special deal” to offset the C$3 billion of tax revenue the province estimated it would lose over 10 years if the takeover were allowed to proceed, Andrew Mackenzie, head of BHP’s non-ferrous businesses, said in an Oct. 22 interview.

“If you walk away from a proposition like this you are starting to send a signal that you’re not open for business,” Mackenzie said at the time. “You will make it harder in the future to attract capital both into Saskatchewan and Canada and you will make it harder for Canadian companies to invest overseas.”

Previous Acquisitions

Harper’s Conservative Party holds 13 of 14 electoral districts in Saskatchewan and any loss there in a future election would push it further away from a parliamentary majority. The party holds 142 of the 308 seats in the House of Commons, 12 short of a majority.

Some of Canada’s largest natural-resource companies have been acquired by foreign buyers in the past decade. In 2006, Switzerland’s Xstrata Plc made a successful hostile bid for nickel producer Falconbridge Ltd. while Brazil’s Vale SA agreed to buy miner Inco Ltd. London-based Rio Tinto Group bought aluminum producer Alcan Inc. in 2007.

U.S. Steel Corp. was sued by the Canadian government last year for failing to meet investment commitments it made in 2007 when it acquired steelmaker Stelco Inc.

The bid for Saskatoon-based Potash Corp. is the third multibillion-dollar transaction in two years that BHP Chief Executive Officer Marius Kloppers has failed to complete.

BHP aborted a proposed hostile bid for London-based Rio Tinto Group, the world’s third-largest mining company, in 2008 as commodity and financial markets plunged. BHP and Rio on Oct. 18 said they scrapped a plan to combine Australian iron-ore operations because of opposition by regulators in Asia and Europe.

To contact the reporter on this story: Christopher Donville in Vancouver at cjdonville@bloomberg.net

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

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