Monday, November 1, 2010

BHP's (NYSE:BHP) Potash (NYSE:POT) Bid Not Only Factor Driving Share Price

Although there can be no doubt the bid by BHP Billiton (NYSE:BHP) for Potash Corp. (NYSE:POT) has pushed the price of the fertilizer company up beyond its market value, it is not the only factor in the soaring share price of Potash, as evidenced by increasing corn and soybean prices which is expected to increase the amount of fertilizer farmers buy for spring planting.

UBS (NYSE:UBS) agrees with that assessment as well, maintaining their "Buy" on Potash, noting their strong support based on the pricing mentioned.

"Results were the second-highest for the third quarter in company history and were 61% above the same period last year...We revised our 2010/2011/2012 estimates from $5.77/8.35/8.68 to $5.98/8.70/9.82 to reflect the higher potash prices, updated guidance and the quarterly results."

"We believe POT’s share price is being impacted by BHP Billiton (NYSE:BHP)’s hostile bid...Given the improved fertilizer market we believe the shares would be trading above $130/share in the absence of a bid. On their Q3 call POT indicated they thought the hypothetical unaffected share price could be over $155/shr. Investment Canada is expected make its decision on the potential deal on Nov 3rd," said UBS.

If the deal is rejected by Canada, we'll all see Potash shares come crashing down, finding the actual value of the company based on market factors and not the bid.

If the deal is allowed to proceed, there may not be much more than a temporary surge in share price for Potash, as a lot of that has already been priced into the shares.

Potash closed on Friday at $145.09, soaring $2.56, or 1.80 percent. UBS has a price target of $175 on Potash, increasing it from $170 a share.

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