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JPMorgan, BHP Banks May Lose $120 Million If Potash Deal Fails

JPMorgan Chase & Co. and nine other banks may lose an estimated $120 million in advisory fees should BHP Billiton Ltd.’s $40 billion hostile bid for Potash Corp. of Saskatchewan Inc. fail.

The Canadian government yesterday blocked BHP’s offer, saying it didn’t provide the country a “net benefit.” The banks would earn as much as $140 million in advisory fees if the deal is successful and as little as $20 million if it fails, according to estimates by research firm Freeman Consulting.

“For many of the bankers involved, their bonuses are likely to be a lot less than they would have been,” said Peter Hahn, professor of corporate finance at Cass Business School in London. “The loss of the fee income is hugely disappointing for the banks.”

The proposed takeover would be the largest deal this year. BHP, the world’s largest mining company, in September lined up $45 billion of loans to fund the deal. The Melbourne-based company has 30 days to appeal the Canadian decision, at which point the government will make its final decision. BHP said yesterday it would review its options.

New York-based JPMorgan, Toronto-Dominion Bank, Banco Santander SA, Barclays Plc, BNP Paribas SA, Royal Bank of Scotland Group Plc and Canadian Imperial Bank of Commerce are BHP’s advisers on the deal, according to data compiled by Bloomberg. Potash Corp. is advised by Bank of America Corp., Goldman Sachs Group Inc. and Royal Bank of Canada.

In addition to advisory fees, financing banks can get as much as $190 million to arrange loans, according to Freeman. Most of the loan fees may have already been paid, Freeman said.

Brian Marchiony, a JPMorgan spokesman in London, declined to comment.

Prudential, AIA

While the target’s defense advisers in a hostile situation may be paid their full fee if the deal fails, it’s unclear in a situation where the government blocks the transaction, said New York-based Freeman.

U.K. insurer Prudential Plc earlier this year failed in its $35.5 billion bid to buy American International Group Inc.’s Asian unit AIA Group Ltd. That deal would have generated about $660 million in fees for advisers, according to Freeman’s estimate at the time the deal was announced.

Should BHP drop the bid, it will be the third time Chief Executive Officer Marius Kloppers, 48, has failed to consummate a deal in the past two years after scrapping the hostile bid for Rio Tinto Group in 2008 and an iron ore joint venture with the same company last month.

“These mega-deals, like Prudential, are getting a second look for a lot of different reasons and it’s getting harder for boards to risk their credibility by attempting these types of transactions,” Hahn said. “BHP has already paid hundreds of millions in banker and lawyer fees for the failed Rio Tinto transaction, so it will be interesting to see how much they have to set aside for the Potash bid.”

Global Deals

There have been $1.71 trillion worth of global deals announced this year, up 20 percent from the same period last year, Bloomberg data show.

The government’s decision 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.

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.

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.

To contact the reporter on this story: Brett Foley in London at bfoley8@bloomberg.net.

To contact the editor responsible for this story: Jeff St.Onge at jstonge@bloomberg.net.

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