News Bulletin

BHPs version of a LBO?

On Wednesday, 17 August 2010, BHP Billiton (BHP) confirmed that it has approached Potash Corporation of Saskatchewan (PotashCorp) regarding a possible acquisition at a price of US$130 per common share, which values PotashCorp at around US$39 billion (A$44 billion). To complete the cash based transaction, BHP does not intend to sell any of its existing assets and has arranged a syndicated loan of US$45 billion.  The already number one global miner takes the view that PotashCorp will place it in a prime position in the global fertiliser industry and diversify its existing portfolio of “Tier 1” assets. 
 
BHP approached PotashCorp’s board with the offer after the close of the Australian share market on Tuesday, but was met with a swift rejection. Moments later, PotashCorp’s Chairman Dallas J. Howe said that “the PotashCorp Board of Directors unanimously believes that the BHP Billiton proposal substantially undervalues PotashCorp and fails to reflect both the value of [its] premier position in a strategically vital industry and [its] unparalleled future growth prospects.” In a letter addressed to BHP’s Chairman Jacques A. Nasser, Mr Howe described the mining giant’s proposal as “highly opportunistic”.
 
BHP will now attempt to circumvent the board and pitch its US$39 billion offer directly to PotashCorp’s shareholders. Mr Nasser said that he “believes PotashCorp shareholders will find the certainty of a cash offer, at a premium of 32 per cent to the 30-trading day period average, very attractive.” 
 
As expected, PotashCorp’s share price rallied from Monday’s closing of US$112.15 on the New York Stock Exchange to US$143.17 at the close on Tuesday, producing a daily return of around 28% and positive results for many of PotashCorp’s shareholders.
 
Source: Reuters, BHP ASX announcement, Potash Corporation of Saskatchewan shareholder announcement

     

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