The War for Potash

If it’s Monday and it’s 2010, then the market is probably up and wouldn’t you know it, it is! Right now, 19 of our 20 Buy List stocks are trading higher and Nicholas Financial (NICK) is unchanged with just 100 shares traded. Once again, the cyclical stocks are trailing the overall market. I think that’s going to be a major theme going forward.
The big news today is that Potash (POT) has officially rejected the $39 billion buyout bid it got from BHP Billiton (BHP) last week. Now Potash is looking around for a “white knight” to rescue them, but it won’t be easy. Billiton’s bid is $130 per share which is pretty rich. The Street expects Potash to make $5.50 per share this year, so the BHP bid is 23.6 times that. Plus, you know the old saying, “$39 billion in hand is better than nothing in the bush.” Interesting tidbit: In any deal, Potash’s CEO will walk away a cool half billion. That’s not bad for saying “yes.’
What will Potash do? Beats me. Maybe some private equity guys will link up. Maybe the Chinese. Maybe the Brazilians. It’s an open game. I also think Billiton will up their bid just to play nice because they may go hostile.
Honestly, I’m not so interested in who will win but who’s willing to play. I still think that the bond market has far outrun the stock market so we should be seeing more aggressive plays like this. The Potash bid is good for the market and I’d like to see some more players join in.
We saw almost the exact same story three years ago when Billiton went after Rio Tinto (RTP), who had just snagged Alcan. Rio shot down the offer so BHP went hostile. Soon after, the world economy exploded and Billiton threw in the towel. When BHP first made the offer in November 2007, shares of Rio surged from $84 to $103. Today, Rio is at $52. Ouch!

Posted by on August 23rd, 2010 at 10:39 am


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