The all-cash $130.00 share, $38.6 billion offer from BHP Billiton plc (NYSE: BHP) for Potash Corp. of Saskatchewan (NYSE: POT) has brought the agriculture sector to the forefront in a big way. The offer, now hostile, is an attempt by BHP to enter the fertilizer market more quickly than waiting to develop its own potash project, which is not scheduled to be in production for another four years. The rush is based on forecast global demand for food and the concomitant need for fertilizer to help grow that food.  We compiled a brief summary of other fertilizer companies and a look at where the value may be for another takeover try.

First, a look at the main player. Potash Corp. closed at $112.15 last Friday with a mean price target of $129.30 and a forward P/E ratio of 18.99. Potash Corp. is the largest potash producer in the world and holds rights to more than 773,000 acres of land for mining.

Following BHP’s offer, on Monday Mosaic Co. (NYSE: MOS) closed at $55.60 with a mean price target of $56.17 and forward P/E ratio of 13.97. Mosaic is the world’s second largest potash miner and the larges producer of phosphate products. It’s relatively low forward P/E and solid mining assets make it an attractive, if fairly rich, target.

Agrium Inc. (NYSE: AGU) closed Monday at $68.89 with a mean price target of $76.26 and a forward P/E ratio of 12.11. Agrium is more diversified than Potash Corp. and has just made an offer to buy an Australian grain marketing firm. The company failed in its effort to acquire CF Industries Holdings, Inc. (NYSE: CF), and could be a target for a company looking for retail outlets in North and South America as well as Australia and New Zealand.

CF Industries closed Monday at $88.53 with a mean price target of $92.82 and a forward P/E of 11.38. Analysts at Goldman Sachs recently put a price target of $110/share on CF and raised the shares from ‘neutral’ to ‘buy’, mostly on the strength of the company’s phosphate and nitrogen businesses. CF doesn’t produce any potash.

Intrepid Potash, Inc. (NYSE: IPI) closed Monday at $25.30 with a mean price target of $26.15 and a forward P/E ratio of 20.08. The forward P/E ratio could just be wishful thinking because Intrepid is too small to attract a big player such as BHP. And the company’s trailing twelve month P/E ratio is nearly 60.

Compass Minerals Intl. Inc. (NYSE: CMP) closed Monday at $73.69 with a mean price target of $80.67 and a forward P/E ratio of 12.38. Compass produces potash fertilizer for high-value crops that is approved for use in organic farming. Again, Compass is not large enough to attract a BHP-size company, but could be attractive to CF or Agrium.

Syngenta AG (NYSE: SYT) closed Monday at $48.73 with a mean price target of $52.83 and a forward P/E ratio of 14.40. This German company is primarily involved with seeds and crop protection products. It does not produce any potash.

Terra Nitrogen Co., L.P. (NYSE: TNH) closed Monday at $92.55. There is neither a mean price target for the shares nor a forward P/E ratio because the stock is covered by just one analyst. Terra produces nitrogen fertilizers, but no potash. It’s trailing twelve month P/E ratio is 15.73.

Market Vectors Agribusiness ETF (NYSE: MOO) closed Monday at $44.46 with a P/E ratio for the trailing twelve months of 16.92. Of the companies discussed here, three are among the fund’s top ten holdings — Mosaic, Syngenta, and Potash Corp.

Finally, a note on the BHP offer for Potash Corp. One day following BHP its offer was rejected, the mining company decided to take the deal directly to Potash Corp. shareholders. Saying that the offer gives shareholders ” immediate liquidity and certainty of value regarding the company’s growth potential in the face of volatile equity markets,” BHP will commence the offer on August 20th, and keep it open until October 19th at which time the company may extend it.

BHP’s offer is conditional on receiving more than 50% of Potash Corp.’s outstanding shares and on the termination of the shareholders rights plan, which prohibits any single shareholder from gaining more than 20% of the company’s stock.

Potash Corp. shares are trading up about 2% in early trading this morning, while BHP shares are down about 2%. Traders are clearly expecting the BHP offer to get sweetened, as shares are now above $145/share.

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Paul Ausick

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