Chinese officials have ordered state-owned companies to meet with investment bankers to explore potential options to block BHP Billiton's $39 billion bid for Canada's Potash Corp., according to a source with direct knowledge of the matter.
In response to the directive, Sinochem is holding meetings with multiple banks, the source said, including Citigroup, HSBC and Morgan Stanley.
The order from Beijing underscores the seriousness with which China is taking the potential BHP-Potash tie up and its implications for the pricing and supply of the important crop nutrient, despite the obstacles to launching a successful counter-bid.
"They are being instructed," the source said, adding the order was issued late last week. "The chairman of Sinochem has been asked to speak to other banks."
News of Beijing's directive follows a Wall Street Journal report on Thursday that Sinochem had hired HSBC to advise the company on options pertaining to Potash Corp.
One option being discussed is the possibility of Sinochem linking up with China's $300 billion sovereign wealth fund, CIC, according to a second banking source familiar with the matter.
The most likely scenario is that China will consider buying a blocking stake, rather than attempt a complete takeover of Potash Corp., both sources said.
The sources were not authorized to speak publicly due to the sensitive nature of the discussions.
Assuming that any consortium pays a 20 percent premium to Potash Corp.'s current market price, a 15 percent stake in Potash would cost about $8.3 billion.
Sinochem and the banks declined to comment. CIC could not immediately be reached.
Chinese firms also have approached at least one big Canadian pension manager about a bid for Potash Corp. to rival BHP Billiton's hostile offer.
The disclosure on Thursday by Alberta Investment Management Corp., which manages some C$70 billion ($67 billion) in public sector pension funds, was one of the first pieces of hard evidence to back up speculation that China is looking for a way to derail a takeover of the Canadian company by the powerful Anglo-Australian miner.
AIMCo said it was not interested, because the economics did not work.
The possibility of Chinese involvement in a valuable Canadian resource has raised concerns in Saskatchewan, which is worried that a takeover of its largest company by a foreign firm or major customer could affect jobs and government revenue.
Saskatchewan Energy Minister Bill Boyd has raised concerns about China buying into Potash Corp and about BHP's stated intent to eventually market its potash offshore on its own, rather than through the export consortium Canpotex.
For its part, BHP had been eyeing a major acquisition in the oil and gas sector over the past year, but was unlikely to move on its ambitions while it is tied up with its bid for Potash Corp., a source said on Friday.
BHP, flush with cash since abandoning a roughly $140 billion takeover of rival Rio Tinto in 2008, has been on the hunt for deals to cement its position as the world's largest diversified miner.
It considered, then abandoned, a joint offer with Royal Dutch Shell last year for Australian oil and gas firm Woodside Petroleum worth some A$35 billion ($31.9 billion), the Australian newspaper reported on Friday.
BHP did not return calls seeking comment on the newspaper report, which also cited an unnamed global energy industry figure as saying the mining giant may also be interested in Anadarko Petroleum Corp.
"The problem with Woodside is it is a very expensive oil company and because there is always takeover speculation, it is very hard to make the numbers work," a source familiar with the situation told Reuters.
BHP Chief Executive Marius Kloppers is currently focused on wooing Potash shareholders and BHP's own investors in four continents about the merits of the offer.
He is expected to spend the next few weeks shuttling between Europe and North America as he tries to clinch his first major deal after three years on the job.
"They are pretty busy right now, but they are a big company so within six to 12 months of getting one deal done there could be presumably be another one," the source added.
Analysts poured cold water on the notion of a second simultaneous major deal, even for a mining giant with BHP's financial muscle.
"I would have thought it unlikely for BHP to be looking at two large acquisitions at the same time. The size of the two transactions matter," said BT's Barker.
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