Oct. 20 (Bloomberg) -- Saskatchewan Premier Brad Wall said BHP Billiton Ltd.’s $40 billion hostile offer for Potash Corp. of Saskatchewan Inc. isn’t beneficial to his province or to Canada, citing lost revenue stemming from the deal.
The Saskatchewan cabinet will make a final decision today on how it will advise the Canadian government on the transaction, Wall told reporters in Regina, the provincial capital. Canada’s federal government has until Nov. 3 to block the bid, unless BHP agrees to an extension of the review.
Wall has been in negotiations with BHP over compensation, according to an e-mail from an official of the Canadian province. Saskatchewan has rejected an offer of C$370 million ($362 million) of infrastructure investment because the amount falls short of offsetting the C$3 billion in lost provincial revenue over 10 years, the official said, declining to be identified because the talks are private.
“I still do not see how this takeover is a net benefit to Saskatchewan or Canada,” Wall told reporters just before entering a cabinet meeting. “At the very basis of a net-benefit analysis, we would need C$3 billion. That would just be keeping the province whole. That would not be a net benefit.”
BHP is confident it can address the province’s concern over lost revenue, the company said today in a statement.
“This is a proposal for an American-controlled company to be taken over by an Australian-controlled company,” Canadian Prime Minister Stephen Harper said in response to a question in the House of Commons today.
BHP “is prepared to make commitments which go beyond the requirements of prevailing Canadian legislation that should effectively address the tax loss concerns of the province,” the company said in its statement.
BHP will restructure the deal to ensure tax revenue will remain the same for the provincial government, reported the StarPhoenix, a Saskatchewan newspaper, citing Andrew Mackenzie, a company executive.
Saskatchewan will formally announce the province’s position on the hostile takeover offer tomorrow, Wall said.
Wall’s speech will include previously undisclosed details about the government’s response to BHP’s bid, Kathy Young, a spokeswoman for the premier, said in an interview. She declined to elaborate.
Potash Corp. dropped $1 to $142.43 at 4:15 p.m. in New York Stock Exchange composite trading. BHP advanced 2.5 percent to 2,192.5 pence in London.
Canada’s Industry Minister Tony Clement said the federal government is talking with BHP and the province as it assesses whether to approve the bid.
“We’re in contact with the government of Saskatchewan,” Clement told reporters outside Parliament in Ottawa. “They’re a key player in this.”
The main opposition Liberal Party formally announced they want the federal government to reject the $130-a-share bid because it would mark a “sell-off” of the province’s potash industry, raising the potential the deal could become an election issue.
BHP’s bid is facing increasing “political headwinds,” Paul Cliff, a London-based analyst at Nomura Holdings Inc., wrote in a report today. He estimates BHP will raise its offer to about $150 a share to win Potash Corp.
“A key risk to the transaction is that it becomes a broader political issue,” Cliff said. “At this point, we believe economics are more likely to prevail and that the bid will eventually be endorsed by the Government of Canada’s Investment Review Division.”
Under the Investment Canada Act, the central government can block transactions if it finds they don’t provide a “net benefit” to the country. There are “serious questions” on whether BHP’s offer meets the criteria of the net-benefit test, Saskatchewan’s Energy and Resources Minister Bill Boyd said Oct. 6.
“I don’t see any net benefit at all, I only see negatives,” Stephen Jarislowsky, chief executive officer of Jarislowsky Fraser Ltd., said today in an interview. His company held 8.73 million Potash Corp. shares as of Sept. 30, according to Bloomberg data.
The Conference Board of Canada, an independent researcher of economic and public policy issues, said Oct. 4 in a report that Potash Corp.’s takeover by BHP would cost Saskatchewan C$2 billion in lost tax revenue over 10 years. The province commissioned the report.
Potash Corp., which is based in Saskatoon, Saskatchewan, has rejected BHP’s offer as too low and said it’s seeking alternative offers amid rising prices for agricultural commodities.
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