BHP Billiton Goes Hostile With Bid for Potash

BHP Billiton
BHP Billiton

The age of hostile takeovers isn't dead, it's simply been sleeping. With the occasional exception of Carl Icahn and Nelson Peltz, hostile offers have become few and far between. The deal to grab RJR Nabisco is 22 years old, and KKR has moved on to private equity deals. The Kraft (KFT) bid for Cadbury wasn't prolonged, despite the U.K. company's initial rejection of a transaction.

But hostile is back in vogue -- at least for a moment. Mining giant BHP Billiton (BHP) has offered $40 billion to buy fertilizing company Potash (POT) in an attempt to rip the company from the hands of its board of directors. BHP's first bid was for $130 per share, but Potash traded as high as $143 when the bid was still friendly, which was only for one day. BHP will now almost certainly need to move its bid price higher.

Bloomberg reports that "Rising food demand and adverse weather have driven up the prices for corn, soybeans and wheat by as much as 40 percent since June, and potash consumption may rise at least 10 percent next year, Potash CEO Bill Doyle, 60, said." BHP believes that its offer -- a 30% premium to the Potash 30-day trading average -- is good enough to take directly to shareholders.

Potash shareholders may raise concerns about the BHP deal. The Canadian company's shares traded well above $230 in May 2008, only to be dragged down with the stock market crash. If Potash's fortunes are indeed bright, then $140 or even $150 a share could be too little to sell out for. Past valuation and prospects of better earnings may be the best defenses the Potash board has.