A day after being publicly rebuffed, mining titan BHP Billiton (NYSE:BHP) said Wednesday it will go hostile with an all-cash $38.6 billion bid to take over fertilizer maker Potash (NYSE:POT).
The decision to make its case directly to Potash shareholders shows that the Anglo/Australian miner feels confident it can convince a majority of shareholders that its $130-a-share offer is fair.
BHP said the offer represents a 20% premium to Potash’s closing price prior to its first approach on Aug. 12 and a 32% premium to its average closing price over the previous 30 trading days. BHP said the bid will give shareholders “immediate liquidity and certainty of value regarding the company’s growth potential in the face of volatile equity markets.”
However, Potash has already rejected the BHP bid, saying Tuesday the offer is “grossly inadequate.” Potash CEO Bill Doyle told The Wall Street Journal the board isn’t opposed to a sale but, “we just don’t expect someone to come steal the company” and BHP must offer a “big boy” price.
Potash hasn’t said what a “big boy” price would look like but sources close to the company told the Journal that an offer would need to factor in Potash’s record high of $240 in mid-2008.
Shares of Potash responded well to the hostile bid from BHP, jumping 2.45% to $146.57 in Wednesday’s premarkets. Potash surged 27.65% on Tuesday on the disclosure of the bid. Other agriculture stocks like Monsanto (NYSE:MON) and Mosaic (NYSE:MOS) also traded higher on Wednesday. On the other hand, BHP’s U.S.-listed stock slid 0.8% to $69.64.
BHP, which has a market cap of about $188 billion, said it believes the proposed takeover will add to its earnings per share in the second full fiscal year following consolidation.
"This is an exciting opportunity to acquire a portfolio of Tier 1 assets. It accelerates our stated strategy of becoming a leading global potash producer and further diversifies our portfolio by commodity, geography and customer,” BHP CEO Marius Kloppers said in a statement.
BHP said the offer will formally begin by way of newspaper advertisement on Friday and be open until 11:59 ET on Oct. 19, unless it is extended at the sole discretion of BHP.
The bid is conditional on the “poison pill” plan that Potash announced on Tuesday that bars shareholder ownership above 20% being terminated. BHP also said it has arranged a revolving credit facility for the purpose of meeting the funding requirements for the takeover bid.