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A window is opening for BHP Billiton Ltd. to once again try a takeover of Potash Corp. of Saskatchewan.
Speculation is intense in the fertilizer industry that BHP may mount another campaign to win over Saskatoon-based Potash Corp. after being shot down in 2010. It failed the federal government’s murky “net benefit test” after a strong push from a Saskatchewan government that opposed the transaction.
Bankers, executives and advisers on the political side agree that BHP would be crazy not to look again. To be clear, there is no sign that any potential deal is under way. But there are numerous reasons that people are talking about the possibility.
The numbers work. The personalities are closer to working. Even the politics are not insurmountable because the landscape has shifted, especially in Saskatchewan. Finally, what was true in 2010 remains true now: Owning Potash Corp. is the best way to get into the potash business.
These days, BHP refers to potash as a “potential fifth” pillar, in addition to the four it is now concentrating on – major iron ore, copper, coal and petroleum assets. However, the company’s actions signal more than that. The company is pushing ahead with construction of the world’s biggest potash mine, its Jansen project in Saskatchewan.
First, the math. Jansen is going to cost something like $15-billion (U.S.). That’s more than half the market capitalization of Potash Corp., which stands at $29-billion.
Throw on a healthy premium to ensure an offer is popular with management and shareholders, and the value would be more like $40-billion. The real cost would be much less.
Perhaps $10-billion of that could be paid for by selling off Potash Corp.’s operations in phosphate and nitrogen, which BHP has not expressed interest in, as well as Potash Corp.’s stakes in international fertilizer producers. Mothballing Jansen, which can be done once the main shaft is complete, could save another $10-billion, and provide the side benefits of reducing future supply and being bullish for potash prices.
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