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MELBOURNE/HONG KONG (Reuters) – China is stepping up attempts to hamper BHP Billiton's $39 billion hostile offer for Potash Corp, amid worries about future supplies of fertilizer it needs to rapidly boost food production.
China's state-run Sinochem has hired HSBC to advise it on its options regarding Potash Corp, the world's largest fertilizer maker, the Wall Street Journal reported in a blog on Wednesday.
Citing a person familiar with the situation, the WSJ said the Chinese company's move is preliminary and doesn't mean it has decided to make a counterbid for Potash.
On Wednesday, a Chinese newspaper reported Beijing was also considering launching an anti-monopoly investigation into the deal.
A Sinochem spokesman in Beijing was not immediately available for comment, while HSBC in Hong Kong declined to comment.
Potash Corp has held discussions with Sinochem, a source close to the matter told Reuters in August.
Sinochem's options may be limited due to Canadian government worries. The energy minister of Saskatchewan, Potash Corp's home base, said the province would have "lots of concerns" about a Chinese sovereign fund or state-owned company buying part or all of the company.
"That's where some of the concern would be: having a customer whose interests obviously are to have very low prices," Energy Minister Bill Boyd told Reuters in an interview this week.
QUESTION OF PRICE
If HSBC has snared a mandate with Sinochem, that would be significant as HSBC did not rank within the top 25 mergers and acquisitions advisers worldwide in 2009, while Morgan Stanley was No.1, according to Thomson Reuters data.
Potash Corp shares slipped 0.9 percent on Wednesday to $145.95, while the U.S. market rose, reflecting creeping doubts about the chances of a rival bid emerging.
But the stock was still 12 percent above BHP's offer of $130 a share, with investors holding out for a higher offer.
BHP shareholders on average see $155 a share, or $46 billion, as the maximum BHP should pay for Potash Corp, according to a Reuters poll, while Potash shareholders see $162 a share clinching a deal, according to a separate Reuters poll.
BHP investors do not need to approve the $38.6 billion bid. However under UK listing rules, they would have to vote on a deal if the offer is raised to 25 percent of BHP's total market value.
Based on BHP's market value on Thursday, the offer would have to be hiked to at least $45.3 billion to trigger a vote of its own shareholders.
"Even uncontested, they'll pay too much," said a Melbourne-based fund manager whose fund owns BHP shares. "Once it gets into the $160s, you'll get a fairly negative shareholder reaction."
CHINA REACTION
China's reaction to BHP's move has also been wary, with Beijing mulling an anti-monopoly investigation into BHP's bid for Potash Corp, China Business News said on Wednesday.
It is not clear what steps Chinese regulators could take against the bid, as BHP does not currently have any potash production, although it is planning to develop the world's largest potash mine, the Jansen project in Canada.
China buys about 7 percent of the output of Potash Corp, which controls around one-fifth of world production of the key crop nutrient.
"In order to protect Chinese farmers' interest, we hope that some big Chinese companies will make a bid," Chen Li, a fertilizer expert at China National Chemical Information Center told Reuters Insider television.
"We believe that China has a few candidates. For instance Sinochem, or Chinese private equity funds, as well as other international companies," she said, adding that money shouldn't be an obstacle.
"If it's in the interest of Chinese farmers, the Chinese government and Chinese investment institutions can help out."
COUNTERBIDDERS SCARCE?
Bankers not advising BHP or Potash Corp, such as Morgan Stanley and Australia's Macquarie Group, are scrambling to find potential bidders to enter the fray, bankers have said.
Rio Tinto, Brazil's Vale and Canada's Teck Resources are all seen as unlikely to get into a bidding war against BHP as they have other priorities or don't have the balance sheet strength.
At $39 billion, some BHP investors are already nervous about the deal and would prefer if BHP returned some of its cash pile to shareholders.
"I've said since day one, we think it's more accretive for shareholders for BHP to return capital. And we don't think diversification for diversification's sake is a reason to buy Potash Corp," said James Bruce, portfolio manager at Perpetual Investments, based in Sydney.
(Additional reporting by Megan Davies in NEW YORK and Alison Leung in HONG KONG; Editing by Ed Davies and Lincoln Feast)
