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Germany's K+S to buy Potash One

A mill manager a pile of processed potash at a mine storage facility in Colonsay, Saskatchewan, on Sept. 24, 2009.

DAVID STOBBE/David Stobbe/Reuters

Europe's largest potash producer struck a friendly deal to buy Canada's Potash One as the global race to secure fertilizer assets propels investment in resource-rich Saskatchewan.

Germany's K+S AG is paying $434-million for Potash One, the Vancouver-based company behind the $2.5-billion (U.S.) Legacy project in Saskatchewan, slated to begin production by 2015.

The $4.50 (Canadian) a share offer, announced Monday, is a 24-per-cent premium to Potash One's previous-day closing price and is recommended unanimously by its board, chaired by well-known mining promoter Robert Friedland.

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The offer comes alongside plans by two of the world's largest miners to build their own potash mines in Saskatchewan, home to half of the world's potash reserves. Brazil's Vale SA firmed up its plans last week to build a $3-billion potash project in the province as Australian-based BHP Billiton Ltd. makes preparations to construct its estimated $12-billion Jansen project.

Potash Corp. of Saskatchewan Inc., the world's largest potash producer, has long held that the high costs required for new potash mines would dissuade competitors from building new production. The new projects are likely to increase potash supplies on the world market and could weigh on prices if demand doesn't meet supply.

The moves come after Ottawa earlier this month rejected BHP's $38.6-billion (U.S.) proposed takeover of Potash Corp. as not being a net benefit to Canada, following pressure from the provincial government.

The Potash One deal, expected to close early next year, is not subject to Investment Canada review because Potash One's assets of about $92-million (Canadian) fall below the financial threshold of $299-million for a deal to be reviewed. It could face competition from other bidders interested in fertilizer expansion, but so far analysts say the chances are slim.

Monday's deal was welcomed by Premier Brad Wall, who points out there has been more foreign investment in new potash mines in Saskatchewan since he spoke out against the BHP takeover. That is despite criticism that he had scared off international investment with his rejection of BHP's takeover bid.

"Some of the predictions were dire and so this is good. This should be a reinforcement not just for our province, and it is, but for the country," Mr. Wall said Monday. "You can do both, you can be strategic and also have a welcoming investment climate."

If the developments planned by K+S, Vale and BHP receive final approval they could threaten Potash Corp.'s power in setting world potash prices. Potash Corp. has clout today through its dominant position in Canpotex, the marketing agency that sells Saskatchewan's potash to customers outside North America.

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Potash Corp. chief executive officer Bill Doyle has alleged BHP's Jansen project was a "smokescreen" to drive down the company's share price before making its hostile takeover bid in August. BHP has denied the allegations.

K+S said it plans to push forward with the Legacy project, with an estimated capacity of up to 2.7 million tonnes annually and the creation of up to 300 jobs.

Potash One chief executive officer Paul Matysek said K+S has "the technical and operational depth" and sales expertise to "successfully bring Legacy forward."

Potash One's directors and officers have agreements to tender a total of about 21 per cent of the shares they hold in the company. The German salt and fertilizer firm would have to pay a $16.5-million breakup fee to Potash One if the deal falls through. K+S also has five days to match any higher offer that may come forward.

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About the Authors

Brenda Bouw is a freelance writer and editor based in Vancouver. She has more than 20 years of experience as a business reporter, including at The Globe and Mail, The Canadian Press, the Financial Post and was executive producer at BNN (formerly ROBTv). Brenda was also part of the Globe and Mail reporting team that won the 2010 National Newspaper Award for business journalism. More

Tavia Grant has worked at The Globe and Mail since early 2005, covering topics from employment and currency markets to trade, microfinance and Latin American economies. She previously worked for Bloomberg News in Toronto and Zurich, writing on mining, stocks, currencies and secret Swiss bank accounts. More

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