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BHP’s Potash Deal to Have ‘Few’ Negative Effects, Report Says

Potash 'Oligopoly' to Tighten Grip
With global population adding 75 million people a year, food demand is set to put further strain on crops, increasing the need for fertilizer. Photographer: Geoff Howe/Bloomberg

BHP Billiton Ltd.’s $40 billion hostile bid for Potash Corp. of Saskatchewan Inc. would have “few” negative effects on the province of Saskatchewan apart from C$2 billion ($1.95 billion) in lost revenue, a report said.

The province would lose out on C$200 million of tax receipts annually over 10 years because the deal would enable BHP to write off costs of its Jansen mine project and help it minimize corporate tax payments, the Conference Board of Canada said yesterday in a report posted on a Saskatchewan government website.

“With the exception of significant government revenue impacts, we found few negative takeover effects,” the board said in the report.

Potash Corp. rose as much as 1.5 percent in New York trading after the publication of the report, which will be used for the province’s submission to a review of BHP’s offer under the Investment Canada Act. Saskatoon, Saskatchewan-based Potash Corp. rejected BHP’s Aug. 18 bid of $130 a share as too low and said it was seeking other offers.

“The gist of the report is they’re not opposing the bid,” Mark Gulley, an analyst at Soleil Securities in New York, said in an interview. “It’s not unreasonable to suggest Saskatchewan could make up the tax shortfall by modifying its rules.”

Potash Corp., the largest producer of its namesake crop nutrient, and BHP said in separate e-mailed statements that they will study the Conference Board’s report. The board is an independent organization that researches economic and public policy issues.

Canadian Concern

The offer “will bring significant benefits to Saskatchewan and to Canada,” Melbourne-based BHP, the world’s biggest mining company, said.

Under the Investment Canada Act, the federal government can block transactions if it finds they don’t provide a “net benefit” to the country.

BHP’s bid has reignited concern in Canada over foreign ownership of some of the country’s largest natural-resource companies.

In 2006, Switzerland’s Xstrata Plc made a successful hostile bid for nickel producer Falconbridge Ltd. while Brazil’s Vale SA agreed to acquire Toronto-based miner Inco Ltd. London- based Rio Tinto Group agreed to buy Canadian aluminum producer Alcan Inc. in 2007.

“The issue is not that BHP is the devil, but that many Canadians feel they’re selling their soul,” Connelly said.

Lost Revenue

Government officials in Saskatchewan, including Energy and Resources Minister Bill Boyd, have said they are concerned an acquirer may break up fertilizer marketing company Canpotex, leading to lower prices for potash exports. Canpotex is jointly owned by Potash Corp., Mosaic Co. and Agrium Inc.

Still, Canpotex’s role as price-setter for potash producers is “modest,” the Conference Board said.

Canpotex “is arguably becoming increasingly redundant as the worldwide market moves to fewer and fewer players that all have an incentive to maximize the return on their assets,” the board said.

Sinochem Group, China’s largest fertilizer trader, emerged as the likeliest bidder to rival BHP’s offer for Potash Corp., three people familiar with the matter said Sept. 27.

Saskatchewan should be “concerned” about a possible bid from a state-owned enterprise, or SOE, such as Sinochem, “especially given that it is a SOE from a major importer country,” the Conference Board said in its report.

“SOEs such as Sinochem simply do not face the same commercial constraints as do commercial enterprises,” it said.

Potash Corp. climbed $1.41, or 1 percent, to $144.05 at 4:02 p.m. in New York Stock Exchange composite trading. The shares have risen 33 percent this year.

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