Market Slumps, POT Climbs 3%; BHP Expected to Raise Bid

Posted by on Aug 18, 2010 | 1 comment

BHP Billiton’s (NYSE: BHP) bid to takeover Potash Corp. (NYSE: POT) was rejected Tuesday, but another offer from the Australian mining company is most likely on its way.

The bid for the Canadian fertilizer company comes on the heels of BHP’s year-long failed attempt to acquire rival Rio Tinto in 2008. The stakes are high, as a successful deal will both help smooth the revenue stream at BHP as well as reshape a flagging image of its CEO.

Potash was quick to reject BHP on Tuesday, calling the offer “grossly inadequate.”

BHP is expected to raise its offer, however, say analysts and investment bankers.

“They are certainly not going to make one offer and walk away if it’s rejected,” said Canaccord Genuity analyst Damien Hackett to Reuters. “There probably will be another offer, but what you can expect is that BHP will be very prudent with their money. They are a very well disciplined group. They are not going to throw cash away.”

Attempting a more level revenue flow

In a letter to Potash executives, BHP stated that financing for the deal has already been secured. Two senior bankers said that BHP would have no problem financing even a larger bid.

“Back in November 2008, the company had a $55 billion financing in place to back its hostile bid for Rio Tinto,” one loan banker said. “Now that the market is more stable, it won’t be surprising for the company to raise that kind of amount.”

A completed deal would elevate BHP to the world’s largest fertilizer maker. It would also give BHP a more steady revenue stream—as the fertilizer and the metals industry run in different cycles.

“It’ll add some stability because it’ll be on a different price cycle to most of the industrial commodities” that BHP presently mines, said Canaccord Genuity’s Hackett.

“It has all the characteristics of a BHP project… The operating assets are in a low political risk regime, they are long lived, big scale, and it makes them an important player immediately in that space,” he said.

BHP’s ambitions to enter the potash market can be traced back to November 2008 with the submission of the Jansen Project Proposal to Saskatchewan Environment and Resource Management.

The Jansen Project was projected to produce approximately 8 million tons of potash annually, or more than 10% of total world production.

“We understand that BHP’s feasibility study should have been due around this time,” said BMO Capital Markets analyst Tony Robson.

“It’d be interesting to see what those numbers were. If they saw a capex blowout for their projects, possibly that means that Jansen was less attractive and Potash Corp was more attractive.”

BHP CEO Kloppers’ job at risk

The collapse of BHP’s hostile takeover of Rio Tinto in November 2008 turned into a failed one-year affair, leaving questions with many as to the judgment and/or abilities of BHP chief executive officer, Marius Kloppers.

While some analysts feel that failure to close the $66 billion deal to acquire Rio Tinto had more to do with unlucky timing than to competence. Completing an acquisition this size in the middle of a financial meltdown couldn’t have been more untimely, though the extent wasn’t clear until the deal was well into the process.

Nonetheless, those close to the industry say Kloppers’ position may be on the line if a possible Potash deal is botched.

“Marius Kloppers one month into the job made a run at Rio Tinto and failed. And he failed expensively. He can’t afford to fail again,” said one investment banker.

On Tuesday, Shares of POT jumped $31.02 to close at $143.17, up 27.66%. BHP closed at $70.21, down $1.71, or a decline of 2.40%.

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BeaconEquity.com is committed to producing the highest-quality insight and analysis of small-cap stocks, emerging technology stocks, hot penny stocks and helping investors make informed decisions. Our focus is primarily OTC stocks in the stock market today, which have traditionally been shunned by Wall Street. We have particular expertise with renewable energy stocks, biotech stocks, oil stocks, green energy stocks and internet stocks. There are many hot penny stock opportunities present in the OTC market everyday and we seek to exploit these hot stock gains for our members before the average daytrader is aware of them.

Beacon Equity Group Disclaimer

This newsletter is a paid advertisement and is neither an offer nor recommendation to buy or sell any security. We hold no investment licenses and are thus neither licensed nor qualified to provide investment advice. The content in this report or email is not provided to any individual with a view toward their individual circumstances. Beaconequity.com is a wholly-owned subsidiary of BlueWave Advisors.

While all information is believed to be reliable, it is not guaranteed by us to be accurate. Individuals should assume that all information contained in our newsletter is not trustworthy unless verified by their own independent research. Also, because events and circumstances frequently do not occur as expected, there will likely be differences between the any predictions and actual results. Always consult a real licensed investment professional before making any investment decision. Be extremely careful, investing in securities carries a high degree of risk; you may likely lose some or all of the investment.

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