By Euan Rocha
TORONTO (Reuters) - Potash Corp said
Wednesday it filed a lawsuit against BHP Billiton
that seeks to block the mining giant's $39 billion
hostile bid for the Canadian fertilizer producer.
The lawsuit filed in a U.S. District Court alleges that BHP
misrepresented and failed to inform investors about material
facts, and it accuses BHP of engaging in fraudulent, deceptive
and manipulative behavior related to its offer.
A BHP spokesman declined to comment on the Potash Corp
lawsuit.
Potash Corp claims that the Anglo-Australian miner sought
to drive down the Canadian company's perceived value by
strategically timing announcements about BHP's plans to become
direct competitor in the potash business. That way, the suit
argues, BHP could eventually make a bid for Potash Corp that
was low enough to avoid triggering a BHP shareholder vote.
Potash Corp claims that the Anglo-Australian miner sought
to drive down the Canadian company's perceived value by
strategically timing announcements about BHP's plans to become
direct competitor in the potash business. That way, the suit
argues, BHP could eventually make a bid for Potash Corp that
was low enough to avoid triggering a BHP shareholder vote.
Under British law a shareholder vote is required if a
company attempts a takeover that exceeds 25 percent of its own
market valuation.
At $39 billion, or $130 a share, BHP's current offer allows
it to avoid a vote that would give its own shareholders an
opportunity to scupper a deal.
STALLING TACTIC?
Such litigation is a standard tactic that takeover targets
use mostly as a stalling tactic, legal experts say, and rarely
do suits of this kind alter the outcome of a battle.
"Litigation is standard, but it accomplishes only modest
goals of giving the target a window into the bidder and some
delay, some smoke," said John Coffee, a professor at Columbia
Law School in New York. "It is very unlikely to result in a
permanent injunction that ends the contest."
Even so, lawyers say the litigation process gives a target
company the opportunity to pursue a discovery process that
could lead to disclosure violations coming to light.
"Litigation is designed to slow things down and that
usually helps the target company in formulating and executing
its strategy in defense of a takeover. It looks like a pretty
typical move," said Gordon Smith, a professor at Brigham Young
University Law School in Provo, Utah.
Potash Corp's U.S.-listed shares were down 72 cents at
$146.80 on Wednesday, but are still trading well above BHP's
$130 offer, suggesting investors anticipate a higher bid.
Many observers expect a competing bid to involve a Chinese
entity such as Sinochem, the giant, state-owned chemicals group
that has hired two investment banks to advise it on options.
China is believed to be worried about a BHP takeover of
Potash Corp because it needs low-cost fertilizer to feed its
growing population. Expectations of surging demand has fueled
BHP's strategy of adding the No.1 supplier to its extensive
mining assets.
COERCIVE OFFER?
The suit filed in the U.S. District Court for the Northern
District of Illinois, also alleges that BHP has sought to
increase its chances of acquiring Potash Corp on the cheap by
making its offer in an unusually coercive form.
Potash Corp's lawsuit states that BHP atypically has not
conditioned its tender offer on obtaining sufficient shares to
enable it to carry out a full merger of the two companies.
BHP would have the choice of ending its offer when just
over 50 percent of Potash Corp's shareholders tender shares,
the suit says. Under Canadian law, a company needs to secure at
least 66.67 percent shareholder support in order enable it to
eventually win full control.
That would leave the remaining shareholders in the lurch -
owning shares in an enterprise controlled by BHP with no clear
way to exit their investments, Potash Corp says.
Saskatoon, Saskatchewan-based Potash Corp argues that the
current structure of the BHP offer results is pressuring its
shareholders into tendering shares toward the BHP offer.
The case is Potash Corp v. BHP Billiton in the U.S.
District Court for the Northern District of Illinois Eastern
Division, No. 1:10-cv-06024.
(Additional reporting by Michael Erman in New York, Pav Jordan
in Toronto and Tom Hals in Wilmington, Delaware; Editing by
Frank McGurty)
