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Canada decides tomorrow on the fate of BHP's (BHP) Potash bid, but options traders have...

Canada decides tomorrow on the fate of BHP's (BHP) Potash bid, but options traders have seemingly made up their minds already. Recent options trading in Potash (POT) suggests investors are expecting a significantly higher bid, either in the form of a sweetener from BHP or a higher bid from a rival.
Comments (4)
  • bob adamson
    , contributor
    Comments (4558) | Send Message
     
    While I personally oppose the proposed BHP takeover of POT (primarily because it represents alienation of yet another significant Canadian industry, undercuts tax and royalty revenues and threatens to make the Canadian potash industry a pawn in future disputes between BHP and China) I believe the following sets out the issues and competing arguments fairly.

     

    There are three distinct threads to the opposition within Canada to the current BHP bid to takeover POT. The first is simply that the bid is too low; A fact implicitly acknowledged by the CEO of BHP when he justify the bid to his Board and shareholders on the basis that now was a good strategic time because rival bidders were not ready with sufficient cash reserves to mount a rival bid. The second is that BHP is threatening to seriously undermine royalty and tax revenues to the Federal and Saskatchewan Governments by changing the way POT operates. The third is that BHP, in effect because of the dominant role of POT in the industry, was bidding to control a major Canadian resource and industry and not really one company. The first of these two might be addressed by BHP significantly increasing its bid price and giving undertakings to the Federal and Canadian Governments. The third is more difficult.

     

    The following address the first basis of opposition:

     

    www.theglobeandmail.co.../

     

    Second basis of opposition flows from the stated objective of the BHP CEO that the Canadian potash foreign marketing syndicate, Campotex, be disbanded. This would lead to greater production and lower pricing for potash thereby lowering government revenues. The following describes this in detail.

     

    www.theglobeandmail.co.../

     

    One might suppose that opposition in Canada on the third basis (i.e. loss of an industry and not merely a corporation to foreign control) would only resonate in nationalist and progressive circles. It is broader based as the following illustrates but there is much debate on this score:

     

    www.theglobeandmail.co.../

     

    www.theglobeandmail.co.../

     

    www.theglobeandmail.co.../

     

    2 Nov 2010, 11:58 AM Reply Like
  • bob adamson
    , contributor
    Comments (4558) | Send Message
     
    The following two articles add to the collection listed in my earlier comment.

     

    www.theglobeandmail.co.../

     

    www.thestar.com/busine...
    2 Nov 2010, 03:48 PM Reply Like
  • slypantherus
    , contributor
    Comments (3) | Send Message
     
    As a shareholder a "No" tomorow would be a winner for both company sharesholders. the Pot should go higher to $165 a share , where it should be.
    On the other hand BHP shareholders would not have to worry about the new billion debt.

     

    Disclaimer i just bough both of them.
    2 Nov 2010, 10:42 PM Reply Like
  • bob adamson
    , contributor
    Comments (4558) | Send Message
     
    The Angus Reid polling organization prepared the following snapshot of Canadian reaction to the BHP take-over bid for POT.

     

    www.angus-reid.com/wp-...

     

    Several points merit noting:
    (a) Until recently the fate of POT was of significant interest among the general public only in Saskatchewan, Alberta and Manitoba;
    (b) These three Provinces, however, are overwhelmingly represented by the Conservative Party in the Federal Parliament;
    (c) It follows that the strong antipathy to the proposed takeover in these three Provinces (which transcends party affiliation) must be cause for serious concern to the Federal Government.

     

    While it might be argued that the fact the takeover issue has to date attracted fairly low interest outside the Prairie Provinces means that, even though the initial reaction to a Federal Government approval of a BHP takeover would be negative, this fact would quickly fade as a potential issue in a future election (at least outside Saskatchewan). Arguably the better view is that, to the contrary, an BHP takeover approval at this time would solidify and expand the negative reaction throughout Canada and this reaction would constitute a serious drag on Conservative Party support over the next 6 to 12 months.

     

    The upshot of all this is that this Wednesday the Federal Government (unless they have seriously misjudged their predicament or have negotiated very major concessions from BHP that address the Canadian control of its potash industry issue) will be to deny approval for the proposed takeover.
    3 Nov 2010, 02:30 AM Reply Like
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