[picapp align=”center” wrap=”false” link=”term=potash+corp&iid=9891169″ src=”http://view3.picapp.com/pictures.photo/image/9891169/potash-waits-1000-metres/potash-waits-1000-metres.jpg?size=500&imageId=9891169″ width=”500″ height=”333″ /]
Reuters is reporting that Sinochem won’t proceed with a possible bid for the world’s largest fertilizer maker, Canada’s Potash Corp., currently subject to hostile $39 billion offer from Australia’s mining giant, BHP Billiton. The state-owned chemicals group had been consulting with investment bank advisors about putting together a consortium counterbid, possibly involving several sovereign wealth funds including Singapore’s Temasek. Reuters says its sources say these discussions are dead.
Potash Corp. produces a fifth of the world’s potash. (The picture above is of a Potash Corp. mine in Saskatchewan.) While the industrial logic for a Chinese bid for the leading producer of the nutrient most essential to boosting grain production to meet China’s booming food needs was there, at least for China, any bid that would have given a customer ownership of its supplier, and thus great pricing power, was always going to be looked on askance by the Canadian government. And the more so if the bidder for such a strategic asset was not just foreign but Chinese.
This political sensitivity may have been behind Sinochem’s decision not to proceed — and we should say that Sinochem has made no public pronouncement on any aspect of its intentions in all of this beyond that it is watching the situation with interest. Our suspicion is that Sinochem has no appetite for being involved in a hostile takeover battle. State-owned companies anywhere rarely launch hostile bids and when they do, they usually end up battered and bruised. Sinochem will no doubt remember the $18.5 billion hostile bid for Unocal of California by CNOOC in 2005 which ended with China’s third-largest oil producer withdrawing with its tail between its legs after running into a wall of xenophobia.
The lesson for China’s state owned would-be multinationals is that minority partnering is a more politically adroit way to go, as the state-owned aluminum group Chinalco did in 2008 when it bought into Rio-Tinto in partnership with Alcoa. Though that wasn’t an entirely happy story in the end, it did minimize political opposition to Chinese ownership of foreign natural-resource assets.
Sinochem’s exploration of a consortium bid would have been along the same tactical lines. Even if that particular proposed deal couldn’t be made to work, either because the numbers didn’t add up or the Canadian government was seen as likely to block any foreign-led bid, the thought of taking a stake large enough to have a voice at the table but small enough not to ruffle nationalistic feathers remains sound. A Canadian-led white-knight bid for Potash Corp. is still on the cards to thwart BHP Billiton. If it happens, this Bystander wouldn’t be surprised to see Sinochem as a minority partner yet.