As Times Runs Out, Potash To Sue For Peace

Time has run out for Potash (NYSE: POT) to find an alternative to the bid made for it by BHP Billiton (NYSE: BHP). The deadline for the $39 billion offer is November 18. Potash could let that date come and go, but would face shareholder suits if it cannot find a higher offer. BHP Billiton has already begun to get regulatory approval of the transaction.

Potash made a tactical error by raising expectations among its shareholders that there will be another suitor. That has not turned out to be the case, but the firm’s share price says otherwise. The firm’s market cap is $42.5 billion, which implies that BHP Billiton or some other firm will make a higher offer.

Potash management may argue that it has nearly a monopoly in the market for the types of fertilizers it creates, but the company’s share price has not traded at the current level since two years ago. This suggests the market is unconvinced by that argument.

Potash management has said that the company will not be sold to BHP. BHP management has said it will not raise its bid. BHP’s stance appears to be supported by the fact that there are no rival bidders.

Potash will probably file several more suits to block the takeover and attempt to get Canadian authorities to derail or slow it. But, Potash management has done more to damage its prospects for independence than anyone else.

Potash announces earnings at the end of this month. The firm has not made any significant progress in convincing Wall Street that the figures warrant a higher valuation for the firm or that its future prospects are much brighter than they are today. Potash had EPS in the second quarter of $1.55. It says the comparable figure for the quarter just ended will be $.80 to $1.20 which is hardly a breathtaking improvement.

Potash has tried to sell investors on the idea that the global need for its fertilizer products will be great enough to allow the firm’s share price to beat the market if the company is left alone. Most financial data says otherwise.

Douglas A. McIntyre