Waiting game may favor BHP in Potash battle

September 22, 2010

BHP Billiton is playing a waiting game. The longer regulators take to approve the miner’s $38.6 billion offer for Canada’s Potash Corporation of Saskatchewan, the more time there is for a rival bid to emerge. Yet any white knight is bound to face similar scrutiny. BHP’s one-month head start in the lengthy process could prove to be a tactical advantage.

To be successful, the Anglo-Australian miner’s bid must get past competition authorities in Canada and the United States. It also needs to win approval from foreign investment bodies including Investment Canada and the Committee on Foreign Investment in the United States.

Canada’s competition regulator has already asked for more information, forcing BHP to extend its $130-per-share offer for Potash Corp. by a month. If the U.S. competition authority follows suit, the process could drag into next year.

BHP’s current business doesn’t overlap much with the fertiliser group. But the Canadian authorities probably want to examine the impact of the miner’s plan to leave Canpotex — the North American potash marketing cartel — and sell its output independently. As a large importer of potash, the U.S. antitrust body is also bound to look closely at the deal.

Any delay would appear to favour Potash Corp’s efforts to drum up other bids. Yet rivals would need to go through the same process as BHP. And lawyers believe that regulators would prefer to look at different buyers in turn, rather than examining them in tandem. That could play into BHP’s hands.

With Potash Corp’s New York-listed shares currently hovering around $148, BHP will have to boost its offer at some stage. But if it is the first to obtain regulatory approval, BHP will have a window in which it can offer Potash Corp shareholders a greater level of certainty. Any rival would have to offer a steep premium to stay in the race.

BHP’s progress with regulators also puts pressure on Potash Corp’s board. The Canadian group remains confident that other offers will emerge. But as time passes, the board may eventually decide that negotiating with the miner is its best hope of squeezing out a higher price.

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