Friday, September 17, 2010

BHP (NYSE:BHP) Facing First Regulatory Hurdles in Potash (NYSE:POT) Bid

Next week the first hurdles to the bid by BHP (NYSE:BHP) may have to be faced in their $39 billion bid for Potash Corp. (NYSE:POT).

While a lot of issues have been brought up in the media concerning the deal, in reality there is very little reason for resistance to the bid.

For example, the competition board of Canada will be looking at the deal from that perspective, but since BHP doesn't even produce Potash at this time, it is largely irrelevant.

A review under Investment Canada will probably be the major challenge for BHP, as they must prove it'll be beneficial to Canada for them to take over Potash Corp.

There is also an issue of national security, which most think is a real stretch, with only the idea of potash being used in the ground to increase crop yields the only supposed issue there, something that would be hard to prove or even take too seriously.

While few are talking about it straight, the real bottom line here is whether BHP would remain in Canpotex, which is the marketing arm of Potash, Mosaic (NYSE:MOS) and Agrium (NYSE:AGU).

The Canadian province of Saskatchewan receives royalties from potash sales, and they would decrease if BHP left the consortium and produced potash on their own, which would assuredly push prices down, contrary to alleged concerns from the Chinese who believe they would increase prices if they took over the fertilizer company.

This paranoia comes from the interaction by China with iron ore giants Vale (NYSE:VALE), Rio Tinto (NYSE:RTP) and BHP, which increased prices when they changed the time-frame of iron ore contract earlier in the year.

Even so, unless there is a lack of integrity or a higher bid is offered, there is really no reason BHP shouldn't be allowed to take over Potash.

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