BHP (NYSE:BHP) May Get Rival Bid for Potash (NYSE:POT) from Russian Company

The more you hear about the opposition to BHP's (NYSE:BHP) bid for Potash Corp. (NYSE:POT), the more you realize it's a good thing, and you check under the more carefully as to why there is such an uproar over a simple bid for the company.

It has largely to do with the misguided partnership of the province of Saskatchewan with Potash, where the Canpotex cartel wrongly manipulates prices and supply in order to maintain the prices and margins they want.

They have a major competitor in the Belarusian Canpotex cartel as well, although they seem to work closely in unison as far as pricing and supply goes, effectively controlling the overall global market.

This is why Phosagro, a Russian-based company has emerged out of nowhere as a potential bidder for Potash, as they recognize the threat to the control of potash from BHP Billiton.

Phosagro's chairman, Vladimir Litvinenko, said, "If BHP controls the potash market, the consequences for our producers may be serious ... we can lose part of [our] markets. This is obvious."

This is also the reason Saskatchewan has been opposing the bid, as they have a sweetheart royalty deal with Canpotex over potash produced in the province, and the also see BHP as a detriment to their siphoning off of billions from the above-market prices and royalties generated from the cartel.

Why this is a threat is because BHP doesn't like the cartel mentality and obvious socialist way the consortium is being operated, and have publicly stated they will produce potash at the rate they choose to and charge competitive prices, not what the other members of the cartel want them to charge, which include Mosaic (NYSE:MOS) and Agrium (NYSE:AGU).

The bottom line? BHP would be good for the industry which has been silently controlling the price of potash, which by extension, controls, to a certain degree, the price of the crops that use the fertilizer.

BHP would be one of the best things to happen to the industry if they are allowed to go forward with the bid and take charge of Potash Corp.

Potash,(NYSE:POT), Agrium (NYSE:AGU), Mosaic's (NYSE:MOS) Canpotex Marketing Arm Lands Five Year Indian Deal

The Canpotex monopoly and price-fixing entity of Canada, which includes Potash,(NYSE:POT), Agrium (NYSE:AGU) and Mosaic (NYSE:MOS), have landed a five-year deal to supply 3 million tons of potash to India's Coromandel International Ltd.

Canpotex CEO Steve Dechka said, "This agreement confirms Canpotex's long-term commitment to the important Indian market, and reflects the confidence our Indian partner, CIL, has in Canpotex's ability to meet their growing potash requirements."

Terms of the deal call for a 500,000 annual supply through March 31, 2016.

Opposition to the bid from BHP (NYSE:BHP) is largely based on their commitment to produce potash at market rates rather than the price controls of the Canpotex cartel.

Farmers pay higher prices and food is also higher in price because of Canpotex and the Belarusian potash cartel.

Hopefully the Canadian government will resist politically-based opposition and allow the bid by BHP Billiton to go forward, as it would be good for the industry and markets.

Potash (NYSE:POT), Mosaic (NYSE:MOS), Agrium (NYSE:AGU) Sign 3-Year Deal with Sinofert via Canpotex

Potash (NYSE:POT), Mosaic (NYSE:MOS) and Agrium (NYSE:AGU) signed a 3-year deal with China-based fertilizer giant Sinofert Holdings, via Canpotex, the marketing and pricing arm of the three companies.

Terms of the deal are for a minimum of 3.15 million tons of potash to be delivered over a three-year period, with pricing to be negotiated at six-month intervals.

The deal begins on January 1, 2011 and extends through December 31, 2013.

With the probability of supply challenges in the years ahead, China and other Asian countries will be beneficial to fertilizer suppliers for some time to come, as demand will eventually outpace supply.

Potash Corp. supplies over 53 percent of the potash sold by Canpotex.

BHP's (NYSE:BHP) Potash (NYSE:POT) Bid Opposed Because of Canpotex?

Although there has been increasing concern over the control of the potash industry by a couple of major players, including Canpotex and Belarusian Potash, it's puzzling as to why there hasn't been more support for BHP's (NYSE:BHP) bid for Potash Corp. (NYSE:POT), as they've stated they want to pull out of the monopoly once the existing agreements expire.

That raised a firestorm in Canada and among other Canpotex members Agrium (NYSE:AGU) and Mosaic (NYSE:MOS), who have been controlling prices for a long time.

You would think there would be a rally on behalf of BHP. Some think BHP would stay in Canpotex once they controlled Potash, but I don't think so.

In the past BHP has been known for moving according to market conditions of supply and demand and not holding back in order to push up the price of potash to protect margins and earnings.

So farmers and consumers would strongly benefit from a BHP takeover of Potash, and hopefully this part of the story will get out more before the foolish and irresponsible leaders of Potash go the Chinese to protect them from the BHP bid.

The Potash (NYSE:POT) Shareholders Strike Back

Angered at what could be perceived as arrogance by the board of directors of Potash Corp. (NYSE:POT), a group of shareholders have sued the board for not taking into account their interests, and rather were serving their own interests.

In a class action lawsuit filed by Richard and Susan Painter and Herbert Francl in the U.S. District Court of Illinois, it stated:

“The board adopted the poison pill to entrench incumbent directors and management of Potash and prevent BHP (NYSE:BHP) from acquiring the company without the consent of the board.

“The individual defendants, the directors of the company, have served their own interests before those of Potash shareholders and acted oppressively and in a manner that unfairly prejudices and disregards the interests of shareholders.”

Listening to the remarks of Potash CEO Bill Doyle, and others, their remarks could come back to haunt them, as it definitely gave the appearance they weren't interested in the shareholders but their own jobs.

Since they're on record, there's a lot that could be used against them in a court case.

Most people without any skin in the game, including a report from the Conference Board of Canada, which was commissioned by the government of Saskatchewan, say over the long term it would probably be beneficial to Canada, although possibly over the first 10 years there could be up to $2 billion in royalties lost. Not much in the overall scheme of things.

There can be no doubt this would benefit the province, although that isn't a reason for the deal to go forward. Extracting all the royalties from the company to pay for socialist programs and wasteful government spending isn't what business is for.

This is about a company that likes to compete wanting to produce potash at it's own pace, and not via the Canpotex cartel which essentially fix prices, an illegal act in the U.S.

Mosaic (NYSE:MOS) and Agrium (NYSE:AGU) are the other members of the monopoly, and they work together to directly decide how much fertilizer to produce and what the price to charge should be.

The government of Saskatchewan is evidently clueless as to how turning over more potash at lower margins would create probably more revenue than keeping prices high and generating less sales.

It's the Wal-Mart (NYSE:WMT factor at work. They make so much money because they keep their costs low and turn over inventory over and over again. That creates huge profits even though they have lower margins at times.

Anyway, this was a no-brainer as far as the lawsuit. Most of the arguments attempted to be made from Potash and their leadership don't make sense, other than asserting sometime in the future they're really going to be a big company again and worth a lot more than they are.

That argument could be made by any company of course.

Bottom line. Potash has been acting arrogant and resisting the deal in a way that at minimum does give the appearance of self interest. It may cost them before it's over, as they've done nothing but throw out gigantic numbers as to what they're allegedly worth, rather than try to work things out with BHP.

BHP (NYSE:BHP) Acquisition of Potash (NYSE:POT) Good for Market

The reason so much resistance has emerged from the BHP Billiton (NYSE:BHP) bid for Potash Corp. (NYSE:POT) has been the socialist nature of the agricultural industry in general, and the potash industry in particular.

With the Canpotex consortium and the Belarusian Potash Co., they pretty much control the potash market and its prices. That needs to end and free market prices allowed to determine how much the fertilizer will cost.

In the case of Potash, the Canadian Province of Saskatchewan sucks a bunch of money out of them, the reason they want things to continue on as they are with controlled prices, rather than allowing the market to dictate events.

The Canadian consortium includes Agrium (NYSE:AGU) and Mosaic (NYSE:MOS), along with Potash. They oppose the acquisition by BHP as well, as they would have to compete with them directly, rather than continue the cozy relationship among one another.

Competition is always the best way to decide who wins in business, and to keep Canpotex operational goes against that idea, as well as keeps the costs of Potash artificially high.

Interestingly, China is concerned about higher prices of Potash if BHP takes over the fertilizer giant, and the Province of Saskatchewan is concerned about lower prices if they do.

All that government has to do is start to become more limited, the best way to deal with out-of-control spending and promises.

Either way, BHP is good for the industry, and whether they land Potash or not, they'll eventually ramp up their Jansen property, which may produce 8 million tons of potash a year.

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.

BHP (NYSE:BHP) Says Potash (NYSE:POT) Deal Must Add Value

BHP Billiton (NYSE:BHP) CEO Marius Kloppers said he wouldn't increase the offer for Potash Corp. (NYSE:POT) to a place where it would provide good value for the shareholders of BHP (NYSE:BHP).

At the same time, Kloppers reiterated he isn't concerned about the rumor of a rival bid for Potash, as his is the only offer on the table.

Rather said Kloppers, he's focusing on navigating his way through regulatory hurdles and seeking political support in Canada.

He also reiterated that he wouldn't hesitate to walk away from the process if rival bids do emerge and they become too high.

"If somebody offers a price at which we cannot demonstrate value for
our shareholders, we're probably not going to show, and I think that
continues to be the case," Kloppers said.

Concerning what is considered one of the largest stumbling blocks, the eventual leaving of Canpotex, which is basically a price-fixing cartel, although also a marketing arm of Potash, Mosaic (NYSE:MOS) and Agrium (NYSE:AGU), Kloppers said market-based pricing would ultimately generate more revenue than the price-fixing of the cartel.

In other words, margins aren't everything, and the increased amount of sales from market prices would surpass the higher prices set by Canpotex, in Kloppers' view.

Canada Questioning BHP's (NYSE:BHP) Potash (NYSE:POT) Bid

The Canadian government is attempting to sway public opinion against the bid by BHP Billiton Ltd. (NYSE:BHP) for Potash Corporation of Saskatchewan (NYSE:POT), generating the question on whether or not the bid is good for the Canadian province.

The premier of Saskatchewan, Brad Wall, said, "The question needs to be, 'Are Saskatchewan people, are Canadians better off as a result of this, is our economy stronger as a result of this very large deal?'". We're doing our homework, we'll see what all of that due diligence tells us, but as of today I'm having a hard time answering that question in the affirmative."

This is all smoke and mirrors, as the real issue is the Canadian province extracts royalty fees from Potash, and the announcement by BHP they weren't interested in continuing on with the marketing arm Canpotex, is what's really behind the "better for Canada" issue.

Canpotex is the consortium of Potash, Mosaic (NYSE:MOS) and Agrium (NYSE:AGU), which in reality are a monopoly controlling potash prices in this part of the world.

They are afraid, and rightly so, that BHP will abandon the monopoly once the existing agreements run out, which would lower the price of the fertilizer and Saskatchewan wouldn't receive as much in fees as they had been.

This shouldn't be any of the business of the Canadian government, as they shouldn't have any say in non-legal matters of a company and how it is run or whether it is acquired or not.

Since when does a business equate to a quasi-government entity, where clueless politicians consider an asset of the country and not the shareholders or individuals which own it?

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.

Potash (NYSE:POT) Looking to China Again Against BHP (NYSE:BHP)

The obsession of Canada, Potash (NYSE:POT) and Saskatchewan with being "delivered" from the bid by BHP Billiton (NYSE:BHP) is getting more bizarre by the day, as after Chinese company Sinochem - who was considered among leading white knights for the company - backed out, they are now pursuing some type of consortium, led by Chinese investors, to battle the bid.

None of this makes much sense for casual observers, as why would Potash and Canada prefer a bid from the Chinese over BHP?

It's about the socialist practices of the Provinces of Canada, in this case Saskatchewan, which has royalties they extract from Potash as a result of the Canadian monopoly through their price fixing with Canpotex, the marketing arm of the potash industry from Canada, which includes Agrium (NYSE:AGU) and Mosaic (NYSE:MOS), along with Potash.

BHP is a fierce competitor and has signaled they have little interest in remaining involved with Canpotex once the existing agreements have been fulfilled and ended.

This means BHP would harvest the potash at levels they want, and would compete on scale and price, and not the fixed and monopolized prices now being forced on farmers and ultimately, consumers.

It's about power and the loss of royalty fees which is at issue, and the reason they're gravitating toward China is it's a similar command-and-control economy as far as Potash goes. In other words, the Chinese understand and approve of the price fixing being done in Canada, and wouldn't oppose like competitors in the free market would.

Spin as they may try, this is about socialism and fascism, where government and corporate lines blur. The end game is who controls the price of potash, and how much the Province of Saskatchewan can siphon off from the company.

A BHP-controlled company would result in better prices and lower costs at the supermarket. The continuation of the current monopoly in Canada will continue to artificially inflate prices and keep them above market rates. That always scares governments attempting to interfere with and control business.

Chinese Wrong on BHP (NYSE:BHP), Potash (NYSE:POT) Bid

In an editorial in the official Chinese Xinhua news agency, it was asserted the bid by BHP Billiton BHP (NYSE:BHP) for Potash Corp. Potash (NYSE:POT) would create a monopoly which would be a threat to all countries producing food.

The commentary said, "Once a monopoly is formed in the fertilizer industry, it will have negative impacts on all grain-producing countries in the world."

While that is a possibility, in the case of BHP it's highly unlikely. As a matter of fact, the opposite is true in relationship to the Potash bid, as Canada was concerned over BHP's talk that they had no desire to stay in the potash marketing arm Canpotex, which in fact does control supply and pricing already.

BHP is noted for high production and competing on price, which it has signaled it wants to do when and if it takes over Potash Corp. That has made it more difficult for BHP to acquire the company, rather than easier.

Its Mosaic (NYSE:MOS) and Agrium (NYSE:AGU), and probably their Russian competitors, who are more concerned over BHP, as they would be forced to compete on price, which BHP would probably be the marketing leading in. It would lower potash prices over the long term rather than increase them.

Rumors that Russian potash competitors Uralkali (URKA.MM) and Silvinit (SILV.MM) could be more than just rumors, and they would be a much bigger threat than any BHP, Potash merger.

Again, at this time, the best thing in regard to potash pricing would be for BHP to take over Potash without any restrictions on production or having to remain part of Canpotex once existing agreements run out.

BHP (NYSE:BHP) Could Land Potash (NYSE:POT) with Jobs, Marketing Guarantees

With competitive, anti-trust possibilities not thought to be a problem for the acquisition of Potash Corp. (NYSE:POT) by BHP Billiton (NYSP:BHP), it is believed they could easily secure the deal if the offer job security and remain as part of the Canpotex marketing arm of the industry in North America.

BHP has said they would prefer to leave Canpotex and market the fertilizer on their own, a practice they've been doing for years with other products.

Along with Potash, Canpotex is made up of Mosaic (NYSE:MOS) and Agrium (NYSE:AGU).

The job guarantees shouldn't be an issue, as they've already communicated the desire to have that be part of the deal.

It would be better for them and the market if they left Canpotex, as it pretty much sets prices and supply for potash, and prop up the price to where they want it.

If BHP were to leave the marketing consortium, they would compete on price, and that would be better for their customers.

BHP will probably attempt to ignore Canpotex, but they may be pressed for guarantees as part of getting the deal approved.

Potash (NYSE:POT) Downgraded by BMO Capital

BMO Capital downgraded Potash Corp. (NYSE:POT) from "Outperform" to "Market Perform."

A growing number of investors are questioning whether or not it's time to take profits with Potash, as it soared after the hostile bid from BHP Billiton (NYSE:BHP), which it rejected.

That rejection generated speculation BHP would sweeten the bid, making investors hold off to see if that would materialize.

BHP CEO Marius Kloppers has attempted to manage expectations there, saying the bid is a fair one, and implying he isn't going to acquire Potash at any cost.

Executives at Potash believe the bid is far too low, and are looking for a white knight to acquire the company, although that hasn't happened, suggesting the bid by BHP is indeed a fair one.

A new development which could challenge that are reports on Russian potash suppliers, who are attempting to raise potash prices in its Brazilian and Asian markets.

An earlier attempt this year failed to convince customers, so we'll have to wait to see if the price increases really happen.

If they do, then Potash would have a supportive argument for being vastly undervalued.

Russian potash producers pretty much guide the global potash prices through the Belarusian Potash Company, the equivalent of Canada's Canpotex, both marketing arms of the industry.

Agrium (NYSE:AGU) and Mosaic (NYSE:MOS) Worried Over Potash (NYSE:POT) Takeover

The cozy relationship between Agrium (NYSE:AGU), Mosaic (NYSE:MOS) and Potash (NYSE:POT) through their marketing arm Canpotex is under pressure from the bid by BHP (NYSE:BHP) for the fertilizer giant, as they declared they have no interest in continuing on with the arrangement once the existing agreements run out.

That also has Saskatchewan taking a closer look at the bid and possible fallout, as they have imposed royalties on potash produced in the region, and with BHP's decision to move volume and be less concerned about prices would have a detrimental impact on revenue in the Province.

BHP isn't the problem though, as other possible suitors have reiterated the same thing, that they aren't interested in continuing the monopoly represented in Canpotex for the benefit of Saskatchewan.

It will be good for the industry to remove this anti-competitive group and let them compete head to head like they should be doing in the first place. That will lower prices and be better for consumers and farmers in the long run.

With Potash accounting for over 50 percent of the sales volume of Canpotex, that has Agrium and Mosaic concerned, as their shareholders must be as well, as they would have to compete on the market and not be reliant on the strength of Potash for their success.

Even the Canadian federal government is looking into the effects of the acquisition of Potash, showing there's far too strong of a connection between the industry and the government, which will be good to break with the deal.

This reveals a dark side to the monopolizing of the potash market by these companies, as they've been controlling prices and not competing against each other in order to maintain margins for the sake of Saskatchewan specifically, and Canada in general. That isn't the free market operating, and it would be good to see it abandoned. Hopefully that's the outcome of all this.

BHP (NYSE:BHP) Control of Potash (NYSE:POT) Could Lower Prices

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.

If BHP (NYSE:BHP) Takes Over Potash (NYSE:POT), No More Canpotex

BHP (NYSE:BHP) has let it be known if they win the bid to take over Potash Corp. of Saskatchewan Inc. (NYSE:POT), they will leave the marketing consortium of the industry, Canpotex.

The mining giant said it will market the potash of the company independent of Canpotex, although they were quick to add they'll honor “existing commitments and contractual arrangements.”

This was according to a filing with the U.S. Securities and Exchange Commission when they filed the original offer for the fertilizer company.

Canpotex is owned by Potash, Agrium (NYSE:AGU) and Mosaic (NYSE:MOS). Together they represent about 40 percent of the potash supply in the world.

Canpotex Deal Helps Potash Corp (TSE:POT), Mosaic Co (TSE:MOS) and Agrium Inc (TSE:AGU)

Canpotex India Deal

The deal by Canpotex with Indian buyers to buy potash will help Canadian potash producers Potash Corp (TSE:POT), Mosaic Co (TSE:MOS) and Agrium Inc (TSE:AGU), which together own the exporting and negotiating unit of the trio.

Potash demand was down strongly in 2009, so even though this will help the companies going forward. The price of $370 a ton was in line with expectations and reveals the rebound will be one step at a time and not a large move. The deal was for 600,000 tons of potash.

Being the largest producer of potash, Potash Corp. will especially benefit from deal, accounting for 54 percent of the potash provided by Canpotex. Mosaic supplies close to 37 percent and Agrium 9 percent.

This announcement follows on the heels of 350,000 deal with China by Canpotex just a week ago. Details of that deal weren't announced.

Canpotex India Deal