A Potash Corp.mine in Lanigan, Sask.Handout/ Potash Corp.
BHP Billiton Ltd. has been coveting Potash Corp. of Saskatchewan Inc . for years, deciding to "stalk with intent" after concluding that building its own potash mine in Canada would not give it the dominant market position it desired, court documents show.
In 2006, before he became the Australian miner's chief executive officer, Marius Kloppers recommended internally that BHP buy Potash Corp. for $13-billion (U.S.) - when the stock was trading around $25 per share - but was unable to persuade top management at the time to do a deal, according to an amended motion filed late Thursday in the legal battle between Potash Corp. and BHP.
The documents unveil new insight into how and why the world's largest mining company planned to enter the potash business, and how it came to launch its hostile $38.6-billion (U.S.) bid, which Potash Corp. has rejected as too cheap.
The motion cites internal BHP documents showing that, in 2006, Mr. Kloppers instructed Alberto Calderon, now the company's chief commercial officer, to "stalk [Potash Corp.]with intent."
The information was made available as part of a lawsuit Potash Corp. filed in a U.S. District Court in Illinois last month, alleging BHP misled investors with its takeover offer, as well as its intentions for entering the potash business years earlier. Saskatoon-based Potash Corp. also alleges BHP plotted to drive down the share price of the company to gain control of it at a cheaper price.
BHP denies the allegations. It tried to stop the court from granting Potash Corp.'s request to gather a number of confidential documents outlining its bid strategy, calling it a "fishing expedition" to help the potash producer gather information to help come up with a counter bid.
The court agreed to a compromise, allowing some documents to go forward but rejecting requests for information, including conversations with governments about its bid.
The amended court documents cite court testimony from BHP executives saying the company has been looking to enter the potash business since 2001, and that BHP has "consistently chosen" Potash Corp. as its primary takeover target.
BHP's senior management, including then-CEO Chip Goodyear, were briefed about a possible acquisition of Potash Corp. in late 2006/early 2007, but the matter was set aside when Mr. Kloppers transitioned into the CEO role in late 2007, the documents state.
Mr. Kloppers immediately turned his attention to a takeover of rival Rio Tinto PLC, but after that bid failed in 2008, he focused again on potash.
He then hired away Andrew Mackenzie from Rio as head of the company's non-ferrous metals group, directing him to focus "above all [on]being the new entrant in potash," the court documents state.
The documents also cite a memo written weeks later by Graham Kerr, president of BHP's diamonds and specialty products group, that outlines the company's move to "build market share in key growth markets" before the commissioning of its own potash project in Saskatchewan, known as Jansen.
"PCS has been assessed as the priority target for BHPB," the court documents say, quoting a memo written by Mr. Kerr. "The cost of [PCS]acquisition would still be attractive relative to the cost to build."
In March 2009, Mr. Kerr told BHP's board that while building its own project was an attractive option, buying Potash Corp. was "a logical choice to accelerate delivery of our strategic goals," of becoming a top player in the global potash business.
"The brutal fact is that BHP Billiton will have to be very patient before we can expect to see ourselves positioned as a significant producer," according the memo outlined in the court documents.
The documents state BHP didn't make an offer for Potash Corp. in early 2009 because of "concern for its debt ratios, credit rating, and the need to develop a plan to sell PCS's nitrogen and phosphate assets."
BHP called its acquisition strategy "Project Porcupine," and in May 2010 creating a steering committee to consider a potential takeover bid.
On Aug. 9, BHP's board authorized Mr. Kloppers to contact Potash Corp. CEO Bill Doyle and set up a meeting in Chicago to inform him about the takeover proposal.