3 Reasons Why BHP May Bid on PotashCorp Again

Speculation is rampant that BHP will take another run at the world’s largest potash producer.

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Back in 2010, Australian mining giant BHP Billiton (NYSE: BHP) did everything it could to acquire Potash Corporation of Saskatchewan (TSX: POT)(NYSE: POT) for U.S. $38.5 billion, but ran into opposition from PotashCorp’s management, then the government of Saskatchewan, and finally the government of Canada.

In the end, it was Industry Minister Tony Clement who announced that the government of Canada had blocked BHP’s bid. Now the Globe and Mail is speculating that BHP could take another run at PotashCorp. Below are three reasons why.

1. The politics have changed

On the surface, it would appear that the politics are very similar. Saskatchewan Premier Brad Wall and Canadian Prime Minister Stephen Harper, who were both instrumental in blocking BHP’s bid, still hold their respective positions.

But in late December, PotashCorp eliminated over 1,000 jobs, about 18% of its workforce, including 440 in Saskatchewan. This did not go over well with Mr. Wall, who said that the company should rethink its dividend policy. So Mr. Wall may not feel as much of a need to protect PotashCorp as he once did — especially if BHP promises to hire back the 440 workers if its bid is successful.

Stephen Harper has also since shown that he is willing to approve large foreign takeovers, such as CNOOC’s $15.1 billion takeover of underperforming oil producer Nexen.

2. New personalities

Back in 2010, the CEOs of BHP and PotashCorp were Marius Kloppers and Bill Doyle, respectively. Mr. Kloppers did not endear himself to Mr. Doyle or Premier Wall, but he has since retired. And Mr. Doyle is stepping down as well. His replacement, Jochen Tilk, does not have Mr. Doyle’s combative personality, and could be open to merger discussions, if other stakeholders are on board too.

3. The economics work

BHP is currently in the midst of building Jansen, which will be the world’s biggest potash mine. The total price tag will be about $15 billion. Meanwhile PotashCorp, including a takeover premium, would cost about $40 billion. But PotashCorp has numerous other assets, such as nitrogen and phosphate production, as well as equity stakes in other public companies.

Combined, these other assets could be worth $20 billion, leaving BHP paying only slightly more than the cost of Jansen. And PotashCorp has far higher production capacity than Jansen ever will.

Furthermore, a takeover would allow BHP to suspend Jansen, which would reduce global supply and help support potash prices.

Foolish bottom line

Despite these changes, a second BHP bid is still far from reality. Premier Brad Wall may be annoyed that PotashCorp cut a bunch of Saskatchewan jobs, but that doesn’t mean he will approve a merger he once opposed. And Jochen Tilk is a big change from Bill Doyle, but Mr. Tilk still has a record of defending companies ferociously against takeover attempts. Finally, if BHP wanted to suspend Jansen, that would lead to layoffs, thus increasing the political hurdles.

So PotashCorp still may be a worthwhile addition to your portfolio. Just don’t count on a takeover.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair holds no positions in any of the stocks mentioned in this article. The Motley Fool owns shares of PotashCorp.

More on Investing

Supermarket aisle with empty green shopping cart

$183 for Toilet Paper and Cups: Why We Love Costco Stock

"I literally went up there to get two things."

Read more »

A worker gives a business presentation.

TFSA Investors: 2 Top Stocks to Buy Before They Rally Any Further

Although plenty of top Canadian stocks have been rallying recently, these two still offer great value and are perfect for…

Read more »

growing plant shoots on stacked coins
Stocks for Beginners

3 TSX Stocks With High Dividend Yields

Are you looking for a great opportunity to bolster your portfolio? Here are three TSX stocks with high dividend yields.

Read more »

financial freedom sign
Stocks for Beginners

1st-Time Investors: 2 Cheap Canadian ETFs to Buy for Financial Freedom 

Investing for the first time but don’t know where to start? Here are two cheap Canadian ETFs that can grow…

Read more »

Money growing in soil , Business success concept.
Dividend Stocks

Got $4,000? 4 Simple TSX Stocks to Buy Right Now

The macroeconomic environment is tense but investing can be simple. Here are four stocks to buy now and book your…

Read more »

Oil pumps against sunset
Energy Stocks

2 Top Canadian Energy Stocks to Buy Offering Dividend Yields Above 6%

These two top Canadian energy stocks are excellent long-term investments and offer unbelievable dividend yields if you buy them today.

Read more »

Target. Stand out from the crowd

4 TSX Stocks I Own and Will Buy More of if They Fall

These are my four top choices of TSX stocks that may dip in the future, but will pay me back…

Read more »

Dollar symbol and Canadian flag on keyboard
Stocks for Beginners

The 2 Best Canadian Stocks for Beginners Right Now

Stock market beginners in Canada could kickstart their investing journey by buying these two stocks right now.

Read more »