Friday, September 24, 2010

Bernstein Thinks BHP (NYSE:BHP) Bid for Potash (NYSE:POT) Could Reach $156 a Share

A Bernstein analyst today said he believes the bid by BHP Billiton (NYSE:BHP) for Potash Corp (NYSE:POT) could be increased to $156 a share, far above the existing offer of $130 a share.

BHP Chief Executive Office Marius Kloppers has been adamant he won't be increasing the offer, especially to levels where it would offer no value to shareholders in the company.

And while there has been alleged interest from China in bidding for Potash, Bernstein asked the question of why China would make a bid for the company focuses on domestic production and the acquisition of potash from the middle east.

The answer is if China is actually interested in Potash, and it's not a ploy to push BHP's bid up, it would probably be because of their experience with the iron ore industry, which is dominated by three companies, including BHP, Vale (NYSE:VALE) and Rio Tinto (NYSE:RTP), where they were able to name their price because of their dominance in the sector.

If that were to happen with potash, it would cause China to pay much more for fertilizer as their agriculture sector needs to produce significantly more to meet the needs of their people. Another major consortium in Russia has control of the sector on that side of the world, which is even more powerful than Canpotex, which controls the supply end of potash in the region, thus prices, and includes Agrium (NYSE:AGU), Mosaic (NYSE:MOS), and Potash Corp.

So barring a major competitive bid, it would be surprising to see a bid as high as suggested by Bernstein.

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