BHP May Fail to Save Potash Bid in Politicized Rebuff

BHP Billiton Ltd. may find Canada’s political climate too hostile to overturn the rejection of its $40 billion bid for Potash Corp. of Saskatchewan Inc. should it choose to appeal the decision.

“It seems highly unlikely that this is some sort of bargaining position that they are willing to change,” said Jonathan Malloy, a professor of political science at Carleton University in Ottawa. “This government does not change its mind.”

Industry Minister Tony Clement on Nov. 3 rejected the offer from Melbourne-based BHP, the world’s largest mining company, saying the proposal doesn’t provide a “net benefit” to Canada. Under Canadian law, BHP has 30 days from the ruling to appeal. Clement’s decision was only the nation’s second rejection of a foreign takeover in the past 25 years.

Saskatchewan Premier Brad Wall, who threatened to take the federal government to court if it allowed the bid to proceed, said in a Bloomberg interview “we have to say no to takeovers that have very strategic implications and that point is insurmountable.” Opposition leaders such as Jack Layton of the New Democrats said they welcomed the move. Even some Potash Corp. investors, including Stephen Jarislowsky, who held 2.9 percent of the shares as of Sept. 30, had spoken out against the transaction.

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.

“It’s the right decision for Canada and for Canadians, and so I stand by the decision,” Clement said in an interview at Parliament yesterday, adding he’s open to meeting BHP.

First Move

Clement said he’ll meet the company if it makes the first move. “Should BHP wish this to happen, we would schedule a meeting between them and my officials to actually discuss what particular aspects of the net benefit to Canada test were not successful.” BHP wouldn’t know from the notice he sent the company why the bid was blocked, said Clement, 49.

“BHP will continue to engage with the minister and the investment review division of Investment Canada and will review its options,” Ruban Yogarajah, a London-based spokesman for BHP, said yesterday by telephone.

Potash Corp. fell 91 cents to $141.06 at 4:15 p.m. in New York Stock Exchange composite trading. The Saskatoon, Saskatchewan-based company gained 30 percent this year, 8.5 percent more than BHP’s offer of $130 a share.

Prime Minister Stephen Harper told lawmakers he wanted to “congratulate” Clement for “taking a decision that is clearly in the best interests of the Canadian economy.” Speaking in the House of Commons, the Conservative leader said “this was a rare case where even a large number, if not most, of the people in favor of foreign investment opposed this decision.”

‘Enormous Negative’

“What benefit does BHP bring to these potash mines? None,” said Jarislowsky, who manages about C$44 billion for pension funds and private investors at Montreal-based Jarislowsky Fraser Ltd., in a Sept. 23 interview. “From the point of view of the country, it’s an enormous negative.”

Morgan Stanley analysts led by Melbourne-based Craig Campbell said in a report the chances of an appeal succeeding are “very low as it would be an abrupt about-face for Canada’s ruling party.”

The initial rejection from Canada is likely to increase pressure on BHP to return excess cash to shareholders, Morgan Stanley said in the report. BHP could return as much as $4.54 a share in addition to Morgan Stanley’s 2011 dividend forecast of 90 cents a share, it said.

BHP Chief Executive Officer Marius Kloppers obtained $45 billion of loans in September to fund the acquisition. BHP rose 0.8 percent to 2,450 pence in London after gaining 6.6 percent yesterday.

Voter Concern

“The large majority of my constituents were asking us to reject the bid from BHP and I passed that directly along to the minister,” Saskatchewan Conservative lawmaker Tom Lukiwski said in an interview yesterday.

Lukiwski said he and the other Conservative members from the province met several times with Clement in the days before the decision was announced and he’s “confident” Clement took the lawmakers’ opinions into account.

Harper’s Conservatives hold 13 of 14 electoral districts in Saskatchewan, a province of about 1 million people north of Montana with an economy reliant on natural resources. Any loss there would take Harper further away from a parliamentary majority, which has eluded him in two prior elections. The party holds 142 of the 308 seats in the House of Commons, 12 short of a majority.

‘Forbidden’

Clement said he is “forbidden” by law to publicly state the detailed reasons for the rejection until the appeal period is over. “I will do so with alacrity at that moment,” he said.

The New Democrats’ Layton asked Harper in Parliament if he would change the “culture of secrecy” surrounding Canada’s foreign-investment laws. Harper replied that “the act should be reviewed.”

“BHP may look to make larger concessions to appease these concerns,” London-based UBS AG analyst Olivia Ker wrote in a Nov. 3 report. “However, our concern is that this is highly politicized and there may be limited recourse for BHP.”

To contact the reporter on this story: Alexandre Deslongchamps in Ottawa at adeslongcham@bloomberg.net; Greg Quinn in Ottawa at gquinn1@bloomberg.net.

To contact the editor responsible for this story: David Scanlan at dscanlan@bloomberg.net.

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