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Capital Markets

PotashCorp: BHP sweats as China waits in wings

Canada’s PotashCorp up for grabs; China’s Sinochem might intervene

Where there’s muck, there’s brass. That old saying – denoting the link between fertile earth and filthy lucre – has never been truer. When BHP Billiton bid $39 billion for Potash Corporation of Saskatchewan (PotashCorp) in August, the world’s largest miner wasn’t just trying to get its hands on Canada’s (and the world’s) largest source of fertilizer.

BHP was simultaneously making two bets. First, that its investors would immediately recognize the benefit of buying an awful lot of potash in an overpopulated and increasingly hungry world. Second, that its $130-a-share tender would be a slam-dunk: too vertiginous to compete with; too attractive to decline.

Generous offer

At first, things appeared to go swimmingly. BHP’s offer was generous – a premium on PotashCorp’s pre-bid New York stock price – and genuine. It moved quickly to stave off any financing concerns, raising $45 billion in loans needed to finalize the deal. Six banks – Banco Santander, Barclays Capital, BNP Paribas, ­JPMorgan, Royal Bank of Scotland and Toronto-Dominion Bank – were hired to arrange the financing. Twenty more, including Scotia ­Capital and UBS, were employed to split the risk on the loan package. The mining company appeared home and dry.

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