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Opinion: PotashCorp bid looks too much for BHP

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For once, the appearance of a hungry lion hasn't scattered the wildlife.

If Potash Corporation investors are unnerved at the prospect of a bid from BHP Billiton, the mining giant, they aren't showing it. Shares in Canadian potash miner have barely budged since BHP's $6bn debt raise last month provoked speculation of a shopping spree. Their composure is probably justified.

Sure, BHP has the appetite for deals. Marius Kloppers, its chief executive, maintained his desire for acquisitions even after the collapse last year of BHP's $66bn bid for rival Rio Tinto.

And PotashCorp has already featured on its shopping list. BHP is keen to get big in the potash market, which could be set for a boom if increased food consumption prompts the growth in agricultural production that observers including the G8 group of industrial nations predict. PotashCorp and rivals Agrium and Mosaic have plans to raise production by more than 17m tonnes a year in the next decade or so.

Even the price doesn't look too bad. PotashCorp's share are down nearly 60% from last year's peak, valuing the company at about $25bn, including debt. Even adding on, say, $7bn for a takeover premium, that's a far smaller mouthful than Rio Tinto.

Proceed with caution

But that doesn't mean that financing the deal would be easier. Indeed, BHP hooked the cash for Rio in far more liquid times. The group's newly-raised $6bn is relatively small beer, even in PotaschCorp terms.

What's more, a deal would be big enough to matter if things go wrong. A bid for PotashCorp would flash large on the international deal radar. Mr Kloppers might not want to risk putting BHP, and himself, in the public eye again unless he can pretty much guarantee success.

That doesn't look likely without the backing of the PotashCorp board, which, in turn, might have a tough job selling out at a cut price.

PotashCorp isn't Kloppers' only option for getting big potash. BHP has plans for its own Canadian potash mine. As long as he can win approval for that scheme, he might be tempted to save his firepower for other deals.

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