Blocking BHP’s move on Potash Corp could be damaging for Canada. The government will decide by Wednesday whether to allow the $39 billion deal to proceed. A BHP takeover might squeeze the tax the fertilizer giant pays its home province. But those costs are outweighed by the discount that the country’s companies would suffer if Canada was deemed to have turned protectionist.

Under the Investment Canada Act’s broad remit, foreign investments must be a net benefit to the country. The government must weigh factors like the impact on jobs, competition, productivity, the ongoing participation of Canadians in the business, and the country’s ability to compete in world markets.

By John Foley and Una Galani

Rio Tinto’s tie-up with rival BHP Billiton has finally crumpled — to the surprise of almost no-one. The deal, which would have combined the two biggest iron producers in Western Australia’s Pilbara region, fell foul of regulators. After more than a year of uncertainty, chief executive Tom Albanese may be relieved. But the saga has not done his credibility any favours.

Albanese first agreed to enter a tie-up with BHP, which had long coveted Rio’s Australian ore, when the company was laden with heavy debts in June 2009. Rio was on the back foot, and the terms of the deal showed that. Rio, which had previously rejected a merger proposal from BHP, even gave its rival the right to nominate the venture’s first chief executive.

Citigroup has the most to lose from its showdown over EMI. The U.S. bank will next week have to defend itself in a New York court against allegations that it tricked Terra Firma, the private equity group led by Guy Hands, into buying the troubled music label for 4.2 billion pounds ($6.7 billion) in 2007. The only way Citi can avoid the confrontation is to agree to restructure the 3 billion pounds it lent Terra Firma to finance the deal.

Hands staked his reputation on EMI. He is now betting the last shreds of his credibility that Citi does not want the details of its boom-era dealmaking to be exposed to the public glare less than two years after it was bailed out by U.S. taxpayers.
David Wormsley, Citi’s lead financial adviser on the deal, is accused of encouraging Terra Firma to pay more for EMI by telling Hands that U.S. rival Cerberus Capital Management was still in the race. Citi denies the allegations, arguing that Terra Firma’s board had already authorised the bid before the conversation took place.

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.

BHP Billiton has shown it doesn’t need to buy Canada’s Potash Corp. The Anglo-Australian miner’s impressive annual results are a reminder of the financial firepower behind its $39 billion hostile bid for the world’s largest fertiliser group. But they also show that BHP is not broken — and that chief executive Marius Kloppers does not need to bet a strong balance sheet on further diversification.

The miner can clearly afford to pay more than the $130 per share offer that it has taken directly to Potash’s shareholders. BHP generated EBITDA of $24.5 billion in the year to June 30, up 10 percent, driven by record production in oil and iron ore. At the end of the financial year, gearing stood at just 6 percent.

Potash prices are crucial to how far BHP Billiton can stretch its $39 billion hostile bid for Canada’s Potash Corporation of Saskatchewan. The miner’s offer is essentially a bet on demand for the commodity, which accounts for the bulk of the fertiliser giant’s value.

According to calculations by Reuters Breakingviews, every $50 increase in the long-term price of a tonne of potash adds about $20 to Potash Corp’s value. BHP’s offer reflects the current market. But if prices rocket, so too will the value of its target.