Canada Extends Review of Potash Takeover Bid

New study suggests BHP, not Sinochem deal, is better for Canada.

Canadian authorities Monday extended their review of a huge takeover offer for Potash Corp. by Anglo-Australian mining giant BHP Billiton, a bid watched closely in China.

Industry Minister Tony Clement said he was extending by 30 days his review of the bid for Potash, the world's biggest maker of fertilizer.

"I will take the time necessary to do a thorough review of this investment proposal," he said in a statement.

BHP Billiton made a hostile US$40 billion takeover bid for the Canadian firm in August, but it was rebuffed as inadequate.

Since then, China's Sinochem Group has tried to mount a rival offer but is reportedly struggling to find a partner.

China, a major importer of potash, which is used to make fertilizer, has been uneasy about the BHP bid as it already buys large quantities of the company's iron ore.

Meanwhile, a study released Monday showed a BHP takeover of Potash would have few negative impacts for Canada while its acquisition by Chinese state-owned firm Sinochem could result in a huge drop in royalties.

Saskatchewan province would likely earn less tax and royalty revenues under either scenario from mining of the world's largest potash reserves, said the report prepared by the Conference Board of Canada for the Saskatchewan government.

But government revenue impacts could be up to three times more under Sinochem's ownership, and in the case of BHP, "we found few [other] negative takeover effects," it concluded.

If BHP's bid succeeds, the report explained, Saskatchewan could receive $2 billion less over a 10-year period as BHP writes off capital investments of its own Jansen Lake project in the province against income generated by Potash Corp and "organize its affairs in such a way as to minimize corporate taxes paid to the province."

The Jansen Lake project is expected to create 2,000 jobs when fully developed, as well as 1,300 temporary construction jobs.

"Therefore, there is a fiscal hit for the province of $200 million per year under the existing tax and royalty regime, with the offsetting positive effect of creating investment and jobs for Saskatchewan," the report said.

A larger concern, the Conference Board pointed out, is the fiscal impact of a drop in the world potash price that could result from a state-owned firm ignoring market pressures.

"If an acquirer chooses to ignore market disciplines and compete for market share through higher volumes and lower prices -- unlikely in the case of BHP but likely in the case of Sinochem -- the adverse fiscal impact on the province could be very significant," it said.

The net effect would be a $5.7 billion reduction in taxes and royalties over a 10-year period, it said.

BHP would not likely pursue such a strategy, the report concluded, "because it would not be the best way to maximize the return on their investment."

"We believe that Sinochem is more likely not to demonstrate market discipline to support the potash price," it said.

BHP last month challenged a lawsuit by Potash Corp aimed at stopping the hostile takeover by the Anglo-Australian mining giant, saying it is "entirely without merit," adding that the firm "will contest it vigorously."

Potash Corp launched the legal action alleging BHP's bid was built on "false and misleading statements and omissions." It had earlier described $130 per-share all-cash offer as "wholly inadequate."

Copyright Agence France-Presse, 2010

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