Tags: Sinochem | Abandons | Bid | Potash

Sources: Sinochem Abandons Plan to Bid for Potash

Friday, 15 Oct 2010 02:40 PM

China's Sinochem will not launch a counterbid for Canadian fertilizer giant Potash Corp., sources told Reuters on Friday, removing one of the biggest potential hurdles to BHP Billiton's $39 billion offer.

The Chinese state-owned chemicals group, which last month appointed Deutsche Bank and Citigroup to help with a possible consortium to bid against BHP's hostile offer, had decided not to proceed, three sources with knowledge of the matter said. "It's finished," one of the sources said.

Another source said the idea of Sinochem forming a counterbid group, potentially involving sovereign wealth funds and industry players, had faltered in recent weeks.

"I'd be surprised if the Chinese formalized their withdrawal, but there's no ... way they are doing anything. It's been dead for five to six weeks," one source said.

The sources declined to be identified because they were not authorized to talk to media.

Sinochem's withdrawal removes a potential obstacle to BHP's ambitions to own the world's largest fertilizer maker. BHP must still convince Potash shareholders and Canadian regulators and politicians to back its offer.

Potash, the world's top fertilizer maker, has flatly rejected BHP's $130 per share offer and has repeatedly said it expects other offers. Potash shares are well above the offer price, suggesting that investors expect a sweetened bid.

Shares of Potash Corp., on Friday, were down 1.4 percent at $145.07 in afternoon trade on the New York Stock Exchange.

"If Sinochem does withdraw, it makes it harder for Potash Corp. to justify to shareholders that the company is worth more and that shareholders should not support the BHP proposal," said Darryl Levitt with law firm Macleod Dixon in Toronto.

"I wouldn't completely rule out the possibility of any other late-stage bids, given the strategic nature of the asset, however this development appears to be maneuvering BHP closer to the finish line," he added.

BHP's Australian-listed shares closed one cent lower at A$41.65 on Friday. BHP is under pressure to complete a deal, as its $116 billion proposed iron ore joint venture with Rio Tinto suffered a new blow on Thursday after Germany said it would ban the planned merger..

CANADIAN CONCERNS

China's main worry is that a BHP takeover of Potash could push up the price of potash, a nutrient essential for boosting grain production to meet booming food needs. Sources said Sinochem would not bid without a positive signal from the Canadian government which was worried about Chinese ownership.

"The answer probably would have been 'no' as they (Canada) don't like the idea of a supplier also being a customer. That would have been the big sticking point," said Peter Chilton, an analyst at Constellation Capital Management which owns BHP shares.

"At this point in time no-one else has come out of the woodwork to bid (against BHP). Without the Chinese there is not a lot left I can think of."

Officials in Potash Corp.'s home province of Saskatchewan, which gets billions of dollars in royalty revenue from Potash Corp., fear the Chinese would hold down potash prices.

British newspapers said this week that Potash was considering defensive moves, including a break-up. They also said Canada's Ontario Teachers Pension Plan had talked to Singapore investment fund Temasek about launching an offer with Canada's Teck Resources.

However, analysts played down the likelihood of those efforts succeeding.
Sinochem had also approached Temasek to join a consortium that might bid but the state investor had made no decision, sources have told Reuters. Temasek declined comment on Friday.

Potash, Deutsche and Citi also declined to comment.

Sinochem spokesman Li Qiang declined to comment on whether it had withdrawn, but said it was still watching developments. Sinochem has never publicly said it will bid for Potash.

REVIEW PROCESS

The Canadian Industry Minister Tony Clement on Friday said the government was continuing to review the BHP proposal.

"We have a role to look at these bids from the point of view of Canadian jobs, Canadian opportunity, Canadian innovation — these kinds of issues ... Obviously we are taking this review seriously, this is not a pro-forma kind of review process," said Clement, who was speaking on the sidelines of an insurance industry event in Toronto.

Clement said that Canadian regulators have had discussions with BHP officials in regard to the offer, but denied that the Canadian government was involved in Sinochem backing away from a possible bid of its own.

"I have never talked to them (and) they've never talked to me," said Clement. "So that's based on their decision not anything the government of Canada has decided."

Last week, a source familiar with the situation had told Reuters that Sinochem wouldn't bid for Potash Corp. unless the Canadian government gave it a positive signal that the bid would receive a fair review from regulators.

© 2017 Thomson/Reuters. All rights reserved.

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China's Sinochem will not launch a counterbid for Canadian fertilizer giant Potash Corp., sources told Reuters on Friday, removing one of the biggest potential hurdles to BHP Billiton's $39 billion offer. The Chinese state-owned chemicals group, which last month appointed...
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