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BHP-Billiton, Sinochem & Potash Corporation

Monopolist sellers and monopsonistic buyers contain their struggles to control crucial world resource markets.

China’s Sinochem has hired two large banks to advise it on the case for buying a large stake in the Potash Corporation of Saskatchewan.  BHP-Billiton has extended its $39b bid for the company ( I discussed this in an August post here) but not increased it – why should it since there is no other bid on the table. It has declared it will walk away from the deal if the price gets too high. It’s a smart move by BHP since it creates the impression here that its opposition bidders, if they take a winning large holding, will have paid too much.  And who knows given the current recovery in the potash market what the thing is worth anyway.

And to complicate things Potash is now suing BHP alleging its offer is built upon false and misleading statements. Potash  alleges BHP had been planning a hostile takeover for a long time, and “embarked…on a strategy designed to drive down the price of (Potash Corp’s) stock and thereby make an acquisition”.  It claims BHP tried to do this by making strategically timed announcements about its plans to enter the industry as a new competitor by developing the first new potash mine in Saskatchewan in 40 years, “and to run its new mine flat out, flooding the market with potash”.  Furthermore that BHP would opt out of the Canpotex potash marketing cartel.

This sounds fanciful.   BHP will be seeking to access any monopoly power it can get even if it operates outside current marketing arrangements.  

Finally, under Canadian law, an acquisition requires approval of two-thirds of shareholders but Potash claims BHP’s tender offer would go into effect with 50% of shares participating, meaning it would control Potash without acquiring it outright. Potash alleges that structure is designed to threaten its shareholders into tendering their shares or face the prospect of becoming minority shareholders in a BHP-controlled entity.

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