Tuesday, October 5, 2010

Potash (NYSE:POT) Claims Study Revenue Numbers too High

Potash Corp. (NYSE:POT), which is battling to keep from being taken over by BHP Billiton (NYSE:BHP), says a study commissioned by the Canadian province of Saskatchewan has tax revenue less than they believe it will be if BHP takes over the fertilizer company.

A report released by the Conference Board of Canada, said there would be "few" negative outcomes if BHP took over Potash, saying over a 10-year period they would amount of about $1.96 billion.

Potash lashed out at the findings, saying the figure was too low because the study didn't take into account BHP mining potash at full production.

What they mean by that is more potash on the market would lower prices, and ultimately margins, resulting in lower earnings. What Potash on the other hand neglects, is increased sales, even if at lower earnings, makes up for the loss of margins. Think Wal-Mart (NYSE:WMT) and how they turn inventory over to make up for lower margins.

So the idea there will be a lot of tax revenue lost is largely hypothetical, and can in no way be proven.

It seems there's really no reason BHP shouldn't be given the go ahead to acquire Potash other than a few people at the top of the company who may end up losing their jobs.

Otherwise the response by Potash isn't reasonable or logical. It's not that hard to figure out there's really not a reason for BHP to take over the company, and in the long run could be a major boon for farmers and others who would be able to acquire fertilizer at better prices, which would increase sales and tax revenue.

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