Trevor Berg, Mill General Super Attendant, holds some potash chicklets in a storage building at the Potash Cory mine near Saskatoon, SK. on August 19th, 2010.Liam Richards
The battle for control of Potash Corp is ratcheting up, moving from the markets to the courts.
Potash Corp., one of Canada's premiere resource companies, has now launched a legal battle against BHP Billiton Ltd. in an effort to stymie its hostile $38.6-billion bid. Potash Corp., accusing the world's largest miner of misleading investors to try to win control at a lowball price, is asking the courts to block the bid until BHP corrects public statements that "undermine investor confidence" in both the Saskatoon-based company and the industry.
The legal complaint alleges BHP pledged to jump into the potash market by developing new mines that would run at full capacity and pose a competitive threat to existing producers such as Potash Corp. BHP's statements contributed to a drop in Potash Corp.'s stock price, making its bid possible at an attractive level, the lawsuit alleges.
"BHP's announcements were strategically timed, intended to color investors' views of the future for PCS, and designed to raise the specter that BHP was the 800-pound gorilla about to become a major competitor," states the lawsuit filed Wednesday in a U.S. District Court in Illinois.
The lawsuit also claims BHP has "knowingly and recklessly sown confusion" in the market about its plans for Potash Corp.'s share in Canpotex, the powerful potash marketing arm. It claims BHP has been "inconsistent" about its plans on whether to exit Canpotex and market potash on its own - which has been one of the most controversial parts of the deal to date.
No allegations have been proven in court. BHP denied the accusations, calling them "entirely without merit" and vowed to "vigorously" contest the legal action.
"This lawsuit seems to be their answer to the absence of another bidder emerging," a BHP spokesman said, calling the lawsuit "entirely without merit".
BHP also said the legal action won't interfere or delay its offer, which was extended earlier this week to Nov. 18.
The legal action escalates the battle between the two miners which began last month when BHP presented its $38.6-billion (U.S.) offer to Potash Corp., and was promptly and publicly rejected. Potash Corp. has said it's in discussions to find other bidders, which it insists are coming. A Chinese-led consortium bid or the purchase of a major stake in Potash Corp. are considered to be the Saskatoon company's most likely defence to fend off BHP's unsolicited $130 (U.S.) per share offer.
The legal action also creates another hurdle for BHP, which is facing mounting political concern over its offer, as well as the potential of a competing bid.
BHP chief executive Marius Kloppers was in Ottawa Wednesday visiting government and opposition MPs in an effort to persuade them the deal is in the best interest of Saskatchewan and Canada. Mr. Kloppers did not meet with Industry Minister Tony Clement or officials at the PMO while in town.
Government officials have launched a review of BHP's offer and whether it would meet the test of being a "net benefit" to Canada as required under the Investment Canada Act.
Mr. Kloppers met with several members of the Liberal caucus, and separately with New Democratic MPs in an effort to assure parliamentarians that BHP's bid would benefit Saskatchewan and Canada.
Deputy Liberal Leader Ralph Goodale, the party's only MP from Saskatchewan, said Mr. Kloppers stressed the company's plan to pull Potash Corp. out of Canpotex, and pursue instead a more free-market approach to selling the commodity worldwide. Saskatchewan Premier Brad Wall has already signalled his concern about that plan, fearing it will drive down prices and deprive his government of potash royalties.
"It's clear that this is hot-button," Mr. Goodale said. "The significant point is the recognition by BHP Billiton and by everyone else that's interested in this potential transaction that this question of marketing strategy is likely to be crucial determinant of what constitutes net benefit."
The federal government could extract an undertaking from BHP to remain in Canpotex, Mr. Goodale said, but he added Ottawa needs to ensure better transparency about whatever commitments it does require.
"The process has to have a higher degree of transparency than it has in the past… If you have a condition but no way to have a remedy, then the condition is specious."