Jarislowsky Prefers Canada Block Potash Bid Amid Suit

Stephen Jarislowsky, head of Jarislowsky Fraser Ltd.
Stephen Jarislowsky, head of Montreal-based Jarislowsky Fraser Ltd., speaks to the media at the Canfor Corp. annual general meeting in Vancouver, May 4, 2007. Photographer: Don MacKinnon/Bloomberg News

Potash Corp. of Saskatchewan Inc.’s third-largest shareholder would prefer Canada to block BHP Billiton Ltd.’s $130-a-share offer because the price is too low and a deal would make his job as fund manager more difficult.

Potash, the world’s biggest producer of its namesake crop nutrient, yesterday sued BHP over the $40 billion bid, saying the Melbourne-based company sought to “drive down” its share price prior to the Aug. 17 offer. Should BHP succeed, Potash would join Canadian mining and metals companies including Falconbridge Ltd. and Alcan Inc. that have been acquired by foreign competitors in the past four years.

“Is the price at $130 an excellent price? No,” Stephen Jarislowsky, chief executive officer of Jarislowsky Fraser Ltd., said in an interview. “Is it a good thing for Canada? No.”

The deals have reduced investment options for investors such as Jarislowsky, 85, whose Montreal-based company manages about C$44 billion ($43 billion) for pension funds and private investors and held 8.82 million shares in Saskatoon-based Potash as of June 30.

“I would prefer it if the government says, ‘You’re not going to do that,’ because for me, if you invest in Canadian stocks and there is nothing left to invest in, it’s not a full market,” Jarislowsky said. “Pension funds need to have a diversified portfolio in Canadian stocks when their liabilities are in Canadian dollars.”

BHP Pledges

BHP, the world’s largest mining company, pledged to make Saskatchewan home to its head office for potash operations in the event of a successful takeover. It also said it will continue developing its Jansen potash project in the province, maintain current employment levels and propose a Canadian nominee for election to its board.

Foreign takeovers of major Canadian companies are automatically reviewed in Canada under the Investment Canada Act. The government can block any transaction if it finds insufficient “net benefits” to the country, based on such factors as employment and productivity.

In the past 25 years, Canada has only formally rejected one takeover offer, Alliant Techsystems Inc.’s bid for MacDonald Dettwiler & Associates Ltd.’s space business in 2008.

Potash Suit

Potash’s suit alleges BHP made “false and misleading” statements about its offer. BHP allegedly sought to depress the value of Potash shares to make an acquisition possible by pledging to develop its Jansen project and to “run its new mine flat out, flooding the market with potash,” according to the court filing.

“The suit is a defensive mechanism, but also an offensive tool because it attempts to point out why the stock is relatively inexpensive on a stand-alone, no-transaction basis,” Louis Meyer, an analyst at Oscar Gruss & Son Inc. in New York, said in a telephone interview. “The rationale is that the best defense is a good offense.”

The lawsuit is “entirely without merit,” BHP said in an e-mailed statement, adding that it does not expect the court filing to interfere with or delay its all-cash offer.

Potash’s U.S. shares have advanced 30 percent since Aug. 16, the last trading day before BHP made its proposal, and are trading above the bid price, indicating investors expect a higher offer.

No ‘Benefit’

“What benefit does BHP bring to these potash mines? None,” Jarislowsky said. “From the point of view of the country, it’s an enormous negative. I don’t know what these governments are thinking.”

Jarislowsky said he hasn’t been approached by BHP to discuss the offer for Potash.

“If there is no better offer, I may have to accept this offer because I am a fiduciary for my clients,” Jarislowsky said. “So from that point of view, I want to get the highest price.”

With a market capitalization of about C$44.9 billion, Potash is Canada’s sixth-biggest publicly traded company. It accounts for about 3.3 percent of the country’s benchmark Standard & Poor’s/TSX Composite Index, trailing only Barrick Gold Corp. among the country’s publicly traded miners.

Potash Corp. fell $1.19 to $146.33 yesterday in New York Stock Exchange composite trading. BHP climbed 20 cents to A$39.10 at 12:19 p.m. in Sydney.

BHP Meetings

BHP Chief Executive Officer Marius Kloppers was in Ottawa yesterday to meet lawmakers about the proposed transaction after earlier this week holding talks with Saskatchewan Premier Brad Wall. The premier told reporters Sept. 19 he isn’t convinced a takeover of Potash is good for the province, according to a report from the Globe and Mail newspaper.

Opposition lawmakers in Ottawa have called on Prime Minister Stephen Harper’s governing Conservative Party to hold a public review of the bid, and impose conditions on any foreign acquisition of the Canadian fertilizer maker.

Rio Tinto Group based its global aluminum operations in Montreal after acquiring Alcan in 2007. Switzerland’s Xstrata Plc bought nickel miner Falconbridge a year earlier, while Rio de Janeiro-based Vale SA acquired Inco Ltd. in that same year.

BHP’s bid undervalues the Canadian company because it comes amid declining fertilizer prices, Jarislowsky said. Potash prices for delivery at the port of Vancouver have dropped about 44 percent since reaching an all-time high in March 2009, according to Bloomberg data.

“BHP is being opportunistic, and I would be too if I were in their place,” Jarislowsky said. “I wouldn’t want to overpay. We are not at a period of high prices for potash, so why would we sell the whole company if prices are at cyclical lows?”

The case is Potash Corp. of Saskatchewan v. BHP Billiton, 10-06024, U.S. District Court for the Northern District of Illinois (Chicago).

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