Setting aside the details of what it would take to acquire Potash Corp. (NYSE:POT) by BHP Billiton (NYSE:BHP), a secondary, and quite likely, positive factor could emerge if the deal ultimately happens.
Similar to OPEC, there are a couple groups of companies which control production and pricing of potash at this time, and if BHP gains control of Potash, that will probably completely change the dynamics, and result in lower potash prices at a time when demand should begin to increase.
BHP has already noted they're not interested in Canpotex, which is headed by the three potash majors: Potash Corp, Mosaic Co (NYSE:MOS) and Agrium Inc. (NYSE:AGU).
They will honor existing agreements, but go no further, meaning they'll operate at full production which is their usual practice, which will bring more potash to market, the reason prices would inevitably fall.
In a filing with U.S. regulators, BHP said, "BHP Billiton will work with the Canpotex shareholders in order to further understand existing agreements and establish the basis for a relationship that provides for continuous and undisrupted supply to export markets and ultimately permits BHP Billiton to market its potash independently."
BHP would eventually pull out of Canpotex once existing obligations were met.
What this would do would be to force their competitors to lower their production if they want the price levels to remain, which, again, would be great for the market, but not for margins and earnings.
For BHP it would be a chance to significantly increase market share, even beyond the levels Potash enjoys now.
It could be up to the shareholders of Potash to decide, depending on whether or not a better offer is made from the company, as the board of Potash officially rejected BHP's offer today.
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