A deal between Potash Corp. of Saskatchewan, Inc. (POT) and German potash and salt producer K+S (OTCQX:KPLUY) is still possible, but it's undoubtedly getting harder for Potash Corp. Earlier this month, K+S rejected a friendly proposal of Potash Corp. to acquire all outstanding shares of K+S for a takeover price of 41 euro. The takeover premium in excess of 40% was generous, but K+S still rejected Potash Corp.'s offer as too low and not in the interests of all stakeholders.
In order to get a deal done, Potash Corp. Chief Executive Jochen Tilk visited with officials from the state of Hesse, in which K+S is headquartered, trying to win their approval for a potential deal and reassure them that Potash Corp. would not, as feared, close German high-cost production mines and cut jobs.
To no avail. Officials of the state of Hesse and K+S' management were united in their opposition to a takeover by Potash Corp.
But K+S does not only bank on local political support to block a potentially hostile takeover by the Canadian potash producer. According to media reports, K+S' Chief Executive Officer, Norbert Steiner, is actively lobbying the federal government to buy a stake in K+S through its development bank Kreditanstalt für Wiederaufbau.
Handelsblatt, a German business publication, reported yesterday:
The head of German potash firm K+S Group has appealed to Economy Minister Sigmar Gabriel for help in his battle to thwart a hostile takeover bid by Canadian rival Potash Corporation, government sources told Handelsblatt.
The government has the power to order it to purchase shares, but such state-sponsored maneuvers to assist takeover targets are unusual in Germany.
KfW would probably only get involved if the government decided that doing so would be in the national interest. Both the finance and economy ministries are skeptical whether that's the case.
I, too, am skeptical: Keeping K+S independent is likely not a strategic interest for the German government. Politicians are surely concerned about layoffs and production sites that might get shut down should Potash Corp. take over K+S, but the German government is not in the business of buying minority stakes in public companies.
The recent developments show that K+S is willing to go to great lengths in order to remain independent. Trying to get the federal government to buy a stake in the company in order to block a takeover is not a common takeover defense. With K+S going out of its way to avoid a takeover, Potash Corp. really only has a chance of getting the deal done by making a hostile acquisition offer.
Your Takeaway
K+S goes out of its way trying to prevent a takeover, which really leaves only one pathway for Potash Corp: A full-on hostile takeover. While it is unlikely that the German government will come to the rescue of K+S and take a minority position through its KfW development bank, I think the odds of a successful acquisition have slightly decreased from 60-70% to 50% since K+S is committed to do whatever it takes to escape Potash Corp.'s fishing net. The next couple of weeks are going to be interesting.
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