We talk about BHP Billiton and Potash Corp

We talk about BHP Billiton and Potash Corp, how it would work practically and how it is something that has been knocking around for a while. The JSE release their first half results. Public sector strike begins today, around one million government employees will "down tools" in order to get the government to budge on their wage demands. Lastly, what does an explosion in the global population tell you, that ties in nicely with the thinking by BHP?



So the biggest news undoubtedly from yesterday was the news that the Potash board decided to reject an unsolicited bid from BHP Billiton in public. I guess they had to make it public if their best defence was to go the route they have decided. The board of the (full name) Potash Corporation of Saskatchewan Incorporated decided to tell BHP Billiton to sod off. So they let loose with this beauty:



"At US$130 per share, BHP Billiton is proposing a premium of only 16% over PotashCorp's August 16, 2010 closing stock price. This low premium does not reflect the strategic importance, scarcity value and quality of PotashCorp's assets, or the unique opportunity PotashCorp affords to BHP Billiton or any other acquiror. Furthermore, the premium offered is substantially inferior even to average control premiums globally and in Canada."



What they should have also added is that on the other hand the numbskulls who sold the stock Monday at 112 bucks should have had their heads read. Oh, I hear you say, the company must have been buying back shares like there was no tomorrow. Because anyone who was not buying the shares at that level, as per the official release must have ignored the fact that: "PotashCorp is a Uniquely Valuable Asset" and "The BHP Billiton Proposal is Timed to Deprive PotashCorp Shareholders of Full Value". Sounds like the fertilizer must have permeated into the boardroom when they came up with this genius piece. Or perhaps the investor relations person stepped in something on the way to work.



Either way you look at it, the Potash board will not engage with BHP Billiton. BHP put out a SENS release in the afternoon, short and curt: "BHP Billiton confirms that it has made an approach to Potash Corporation of Saskatchewan (PotashCorp) regarding a possible acquisition of PotashCorp at a price of US $130 per common share. To date the Board of PotashCorp has not agreed to engage in discussions. BHP Billiton continues to review its options and will make a further announcement in due course."
And this is the tricky part, what are those options? Well BHP Billiton this morning have considered going hostile, or so the wires are reporting. I checked out who the shareholders of Potash are, and only one owns more than five percent, check out Potash ownership. If these shareholders were to crazily agree on the 130 bucks a share (POT closed at 143.17 on ten times the normal volume) offer by BHP, this would
be the biggest deal of the year so far. Yip folks, this is a BIG deal.



Now who are the Potash Corp? You might have heard me refer to them a few times, in fact I wrote about them last year, from a post dated 20 October 2009: "One that I like, BHP Billiton. And another one that I like, Potash Corporation of Saskatchewan. Really. Well a Bank of America Merrill Lynch analyst thinks that BHP could buy POT (real sharecode of the mountain fertilizer oversized monkey) at a thirty percent premium to the current price and it would be earnings enhancing. As predicted BHP declined to comment." Potash Corp. of course are a producer of the key component in fertilizer, would you believe, called potash.



This is more a call by BHP on long term food production. This line from a Wiki piece on the world population is telling: "The population of the world reached one billion in 1804, two billion in 1927, three billion in 1960, four billion in 1974, five billion in 1987, and six billion in 1999. It is projected to reach seven billion by late 2011, and around eight billion by 2025."



The quickest click at which the world population will double, 47 years from '27 to '74 and now projections are another doubling from '87 to 2025, 51 years. From 2 to 8 in less than 100 years. Nobody is quite sure how many humans have ever lived, but the number is thought to be around 100 billion. Wow...... At a birth rate of around 150 million folks a year since 1975, my estimate suggests around 5 billion people are 35 or younger. Is that right?



The earth is not getting bigger, so humans are going to put further pressure on resources. Science has improved enormously over the last 100 years, this has helped crop yields. Potash is a finite resource, and Canada has around 11000 million tonnes of the 18000 million tonnes or so resources base in the ground. This is about large populations and urbanisation trends, with the agricultural world having to become better at what they do.



We wait to hear from BHP Billiton and what their response will be. Remember that they have an asset that they plan to start seeing produce in the next five years, adjacent to some key Potash Corp. assets. Expect softness in the BHP Billiton price, as the price tag would weigh heavy with expectations of either existing shareholders shelling out in a whopping rights issue, or being straddled with more debt. Or realistically, both, a higher bid would mean a lot more cash. And the Potash share price, 13 bucks above where BHP started is telling you that they will come back.


The waiting was not long at all, an announcement this morning from the company, here are some key points: "Fully funded all-cash offer of US$130 per share for PotashCorp" which "represents a 20 per cent premium to the closing price of PotashCorp on 11 August 2010." And not 16 percent. And, "it is also a premium of 32 percent and 33 per cent to the volume weighted average trading prices of PotashCorp`s shares on the NYSE for the 30-trading day and the 60-trading day periods ended on the same date, respectively."



This is detailed man, very detailed stuff, BHP point out that they have been operating in Canada for forty years. Schmoosing the Canadian government. The company estimates that 43 billion Dollars in total is needed to consummate the full offer. Check out the full details from the BHP Billiton website: BHP Billiton Announces All-Cash Offer To Acquire PotashCorp.