Potash Corp. of Saskatchewan (PotashCorp) says it has rejected an unsolicited acquisition bid from mining company BHP Billiton (Melbourne). PotashCorp's board "unanimously" rejected the $130/share cash offer, which values PotashCorp at about $38.5 billion. The non-binding proposal "is grossly inadequate and it is not in the best interests of shareholders for PotashCorp to enter into discussions with BHP Billiton," PotashCorp says. The offer price is a 16% premium over PotashCorp's closing price yesterday. BHP Billiton has not formally announced a bid for PotashCorp and declined to comment on PotashCorp's statement.

PotashCorp, meanhwile, has bolstered its defenses by announcing a shareholder rights plan. The rights plan "is intended to ensure that in the context of a formal takeover bid, the board of PotashCorp has sufficient time to explore and develop alternatives to enhance shareholder value, including competing transactions that might emerge," PotashCorp says. PotashCorp's board has authorized the issue of one share purchase right in respect of each common share in PotashCorp outstanding as of the close of business yesterday. The rights will become exercisable if any investor or investors jointly acquire or announce plans to acquire 20% or more of PotashCorp.'s common stock.

PotashCorp says it is the biggest producer of fertilizers by capacity. It is the market leader in potash with 20% of global capacity, and the third-largest player in nitrogen and phosphate. It is also the biggest producer of phosphate feed ingredients, industrial nitrogen products, and purified industrial phosphoric acid. The company's sales dropped from $9.4 billion in 2008, when potash prices hit record highs, to $4 billion in 2009 due to the global economic recession. PotashCorp has operations and business interests across seven countries. Six of its seven wholly owned potash locations are in Saskatchewan and the other is in Alberta.

BHP Billiton says it is the world's largest diversified natural resources company with sales of about $50 billion/year. The company has interests in aluminum, base metals, coal, diamonds, iron ore, manganese, oil and gas, and stainless steel materials. BHP Billiton has no potash or fertilizer production but it is investing $10 billion to develop a potash deposit at Jansen, SK and expects production to begin there in 2015. Analysts, however, have speculated for some time that BHP Billiton would seek to enter the potash business earlier via a major acquisition and cited PotashCorp as a likely target. BHP agreed earlier this year to acquire potash explorer Athabasca Potash (Saskatoon, SK) for C$341 million.

Fertilizer companies have become attractive acquisition targets for mining firms as an expanding global population generates fast-growing demand for food, analysts say. Metals mining firm Vale (Rio de Janeiro) acquired the Brazilian fertilizer assets of Bunge Ltd. earlier this year. Fertilizer consolidation is also expected in Russia, most likely involving potash producers Uralkali (Berezniki) and Silvinit (Solikamsk), as well as phosphate firm PhosAgro (Moscow). Mining company Rio Tinto (London) and PotashCorp would be interested in buying minority stakes in any company resulting from a merger between two or more of the Russian firms, analysts say.

BHP Billiton's offer "fails to reflect the value of our premier position in a strategically vital industry and our unparalleled future growth prospects," says PotashCorp chairman Dallas J. Howe. "We believe it is critical for our shareholders to be aware of this aggressive attempt to acquire their company for significantly less than its intrinsic value. The fertilizer industrry is emerging from the recent global economic downturn, and we feel strongly that PotashCorp shareholders should benefit from the current and potential value of the company. We believe the BHP Billiton proposal is an opportunistic effort to transfer that value to its own shareholders."