 TORONTO (miningweekly.com) – The general consensus on Tuesday was that BHP Billiton will have to pay quite a bit more than the $130 a share it has proposed if it wants to get its hands on fertiliser products giant Potash Corp.
In fact, investors pushed shares in Potash Corp to above $143 a share in New York, an increase of 28% and well above what is on offer from BHP, the world's biggest mining company.
But analysts were less certain whether another big miner might use the fact that Potash Corp has been put into play to place its own bid for the company.
The two most obvious potential rivals to BHP are the second- and third-biggest mining companies – Vale and Rio Tinto – which have both said they are interested in potash, but there are question marks over whether either company would be able, or even inclined, to finance such a big deal.
It has also been suggested that a Chinese company might come in with an offer for Potash Corp.
Dahlman Rose analysts Anthony Rizzuto and Anthony Young said in a note that they do not expect either Vale or Rio to make a competing offer, because “they do not possess BHP's financial strength or size”.
BHP has fully negotiated financing facilities with its banks to fund the $38,6-billion deal, according to a letter from chairperson Jac Nasser to Potash chair Dallas Howe.
“With a substantial market cap and clean balance sheet, BHP would be able to relatively easily digest such a large acquisition, in our view,” the Dahlman analysts commented.
But Soleil Securities analyst Mark Gulley still believes that Vale and/or Rio could enter the picture.
Rio may be the more likely of the two though, as Vale has already begun buying and developing potash and phosphate assets in South America, Gulley commented in an interview on Canada's BNN.
Vale has "no comment" on the issue, spokesperson Fatima Cristina told Mining Weekly Online.
CNBC, meanwhile, reported that Vale will not make a bid for Potash Corp, citing unnamed sources.
Standard & Poor's analyst Richard O'Reilly also raised the prospect that Potash Corp could opt for a “defensive” acquisition of another potash producer.
Both Gulley and O'Reilly raised their price targets on Potash Corp, to $160 and $150 respectively, but maintained 'hold' opinions on the stock.
Offers from Rio Tinto and Vale are “possible”, although Rio would probably make more sense, said Salman Partners analyst Jaret Anderson.
But as far as price is concerned, BHP will need to go “a lot higher” if it wants to win the backing of Potash Corp's board of directors, he said in an interview.
“But what that number, is I couldn't tell you.”
Gulley agreed, commenting that the 16% premium over Monday's closing price was too low for a transaction that would transfer control of the global leader in a commodity like potash.
He also commented on Potash Corp's decision to publicise the receipt of the unsolicited offer so quickly, and before engaging in any discussions.
The move suggests “pretty strongly” that the company is for sale, he said.
Until the offer was made public on Tuesday, BHP has been adamant that its potash strategy involved building new greenfield mines at its Saskatchewan projects, rather than growing buy acquisition.
But, given the high cost, and long lead times involved in new mines, many analysts remained sceptical and were expecting a bid for a large producer eventually.
It is likely the BHP has been looking at Potash Corp and considering a bid “for at least a couple of years”, Salman Partners' Anderson said.
Read more on the offer and Potash Corp's response here.
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