Chinese approach Alberta fund about bid for Potash Corp.
Thursday, September 2, 2010 at 5:31PM Move seen as evidence China wants to block BHP bid
By Rod Nickel and Joseph Chaney
TORONTO/HONG KONG (Reuters) - Chinese and other investors have approached at least one big Canadian pension manager about a bid for Canada's Potash Corp (POT.TO) to rival BHP Billiton's (BHP.AX) $39 billion (25.3 billion pounds) hostile offer.
Thursday's disclosure by Alberta Investment Management Corp, which manages some C$70 billion in public sector pension funds, is one of the first pieces of hard evidence to back suspicions that China is looking for a way to derail a takeover of Potash Corp by the powerful Anglo-Australian miner.
In another sign of Chinese interest in countering BHP's $130-a-share offer, state-run chemical group Sinochem has hired HSBC for advice on its options, the Wall Street Journal said, while Saskatchewan, where Potash Corp is based, is seeking its own independent probe of the takeover.
China, which buys about 7 percent of the output of Potash Corp, fears a BHP takeover might jeopardize supplies it will require to feed its huge population in coming years.
Leo de Bever, chief executive of the Alberta public-sector pension manager, said he had fielded inquiries from a number of parties, including sovereign wealth funds.
He said Chinese investors were among those asking him to consider participating in a bid for Potash Corp, the No.1 fertilizer supplier.
"We don't have any feeling of nationality of counter-parties. We work with people in other countries all the same, and we would be pleased to work with the Chinese entity if that made sense," said de Bever. But he also said AIMCo was not interested in a Potash deal at this point.
"We can't right now make the economics work," he told journalists in Calgary.
"If it were to work it would take a consortium of pension funds if you were to do it, but the question is, is that really appropriate for those pension funds."
But analysts remain sceptical that China, the world's top consumer of potash, will come to the rescue of Potash Corp.
"Above all the Chinese will not want to be rebuffed in any way. It was bad enough what happened to them with Rio Tinto so I would think they would be extremely cautious," said analyst Tom Gidley-Kitchin at Charles Stanley in London.
Rio Tinto (RIO.AX) last year scrapped a $19.5 billion equity and asset tie-up with Chinese state-owned aluminium group Chinalco.
JOBS AND REVENUE
The possibility of Chinese involvement in a valuable Canadian resource has raised concerns in Saskatchewan, which is worried that a takeover of its largest company by a foreign company could affect jobs and government revenue.
It said it had asked the Conference Board, a nonprofit research organisation, to examine the effect of a takeover, including the conditions Saskatchewan might ask the federal government to might impose on a deal and ways to mitigate risks from BHP's bid and any others that could come forward.
"We have done a lot of work on both foreign direct investment in Canada and on M&A in the past...so we are probably as well equipped as any other organisation to do this," Conference Board chief economist Glen Hodgson said.
"But the time-frame is tight, so we are going to have to go fast," he told Reuters. The think-tank would provide recommendations, but focus on identifying implications and opportunities for the Prairie province, he added.
Saskatchewan Energy Minister Bill Boyd has raised concerns about China buying into Potash Corp and about BHP's stated intent eventually to market its potash offshore on its own, rather than through the export consortium Canpotex.
"That is where some of the concern would be: having a customer whose interests obviously are to have very low prices," Boyd told Reuters this week.
Any changes to marketing or production could lower potash prices, which determine the size of Saskatchewan's royalties.
The province, which produces one-quarter of the world's potash, depends on those royalties for hundreds of millions of dollars a year and collected nearly C$1.4 billion (863 million pounds) in 2008-09 after potash prices spiked.
SINOCHEM SEEKS ADVICE
Sinochem has ranked near the top of the list of entities that analysts think could mount a competing bid, and the Wall Street Journal, citing sources close to the matter, confirmed the Chinese firm might be interested.
But it said the move to hire HBSC was preliminary and did not mean Sinochem would make a counterbid for Potash Corp.
Sinochem in Beijing was not available for comment, while HSBC in Hong Kong declined to comment.
A source close to the matter told Reuters in August that Potash Corp has held discussions with Sinochem. Potash has a 22 percent stake in Sinofert (0297.HK), a Sinochem subsidiary that is China's top fertilizer producer.
Rio Tinto, Brazil's Vale (VALE5.SA) and Canada's Teck Resources (TCKb.TO) 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.
That leaves big Canadian pension fund managers, including Ontario Teachers' Pension Plan and Canada Pension Plan Investment Board, as being among those with the wherewithal to mount a competing bid.
Potash Corp shares rose 1.9 percent on Thursday to $147.82 in New York
The stock is nearly 14 percent above BHP's offer of $130 a share, with investors holding out for a higher offer.
BHP shares in London dipped 0.11 percent to close at 1,904.71 pence.
BHP shareholders polled by Reuters on average see $155 a share, or $46 billion, as the maximum BHP should pay for Potash Corp. Potash shareholders see $162 a share clinching a deal, according to a separate Reuters poll.
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