BHP Billiton will to raise its $39bn bid for PotashCorp to secure a deal, analysts have said - with Canadian broker National Bank Financial saying an extra $20bn could, on paper, be justified.

A slew of brokers said that they expected BHP to lift its initial offer, which was rejected as "grossly inadequate" by the PotashCorp board, with major investors in the Canadian fertilizer giant reportedly unimpressed by the current proposal, equivalent to $130 a share.

PotashCorp shares have already jumped to significantly above that price, closing at $148.84 in New York, up 0.6% on the day and 33% higher than before BHP's bid was revealed on Monday.

However, the range of estimates varies hugely for the price BHP needs to secure the deal which will make it the world's top fertilizer group.

Range of expectations

Credit Suisse analysts, saying they "would expect BHP to lodge a revised offer in the coming weeks or months", have valued PotashCorp at $148-180 a share.

Vancouver-based Salman Partners, noting some risk of a potential rival bid, raised its target price for the stock to $150.

Toronto-based Mackie Research, saying BHP "will likely propose an improved second bid", suggested $150 a share as "reasonable", while National Bank said that a price above $200 could be justified on the historical multiples of earnings that PotashCorp shares have traded at.

'Long battle'

Applying historic earnings multiples, which have been as high as 30 times earnings, implied a "core" price target of $154-203 a share, National Bank said in a note.

However, with other methodologies suggesting lower figures, the broker limited to $180 its target price of PotashCorp shares.

"We expect that this is the first shot in what is likely to be a long battle for the control of PotashCorp, and expect the stock to trade substantially higher," the report said.

Lessons from history 

Expectations of an extended content were also voiced by Mackie analysts, who noted that "historically BHP has demonstrated patience in its acquisitions".

In its pursuit of rival Rio Tinto, which was scuppered by the global financial crash, BHP waited three months before raising its bid to 3.4 of its shares per Rio share, from an initial 3.34-shares-to-one offer. The bid was not dropped until November 2008, a year after it was launched.

The bank also noted the prospect for BHP to undertake its acquisition in stages, as it did with Australian mining group WMC Resources in 2005. This may, however, fall foul of PotashCorp shareholder restrictions introduced this week.

Mackie added that a price above $200 a share for PotashCorp was implied by comparison with CF Industries' takeover of Terra Industries' earlier this year, which was struck at a multiple of 20.5 times the target's earnings.

"However, such a high price will probably more than offset the potential synergies, and there are no foreseeable threats in the near future that could force BHP to pay such a premium," the broker said.

In London, BHP shares closed down 2.1% at 1,810p, taking their losses since before the PotashCorp bid to 6.8%.