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K+S rejects $8.7bn bid from PotashCorp

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K+S rebuffed an $8.7bn takeover offer from PotashCorp, which it characterised as attempt to by the first greenfield potash mine in Canada for nearly 40 years on the cheap, and a potential threat to thousands of jobs.

The German potash group said that the E41-a-share deal proposed by Canadian rival PotashCorp "does not reflect the fundamental value of K+S, and is not in the best interest of the company".

Indeed, K+S chief executive Norbert Steiner said that the offer "completely disregards the value of our Legacy project", a Canadian project in which the group has already invested more than E2bn, and which it valued, including futures earnings, is alone worth E21 a share.

"This is not yet reflected in the [K+S] share prices," Mr Steiner said.

"We believe PotashCorp is trying to take advantage of the valuation gap to takeover K+S and gain control over Legacy."

Legacy to stay out of Canpotex

Some commentators believe that PotashCorp indeed sees Legacy as the prime appeal of buying K+S – in part because of the threat the mine could pose to North America's strong control of its potash exports.

The region's three big potash miners, PotashCorp, Agrium and Mosaic, all market the nutrient abroad through the Canpotex constortium.

K+S has confirmed that it had no plans for Legacy, which is expected to produce 2m tonnes of potash by the end of 2017, to join Canpotex.

At Legacy, "the first tonnes of potash will be produced by the end of 2016, and positive cash flows will be generated from 2017 onwards," Mr Steiner confirmed on Thursday.

'Vague' answers

Mr Steiner also raised concerns at potential job losses if a PotashCorp takeover was successful, saying that the Canadian group had "made no firm commitments to protect the interests" of K+S's 14,000 employees worldwide.

"Despite repeated requests to address this question, PotashCorp's answers have remained vague," Mr Steiner said, estimating at 30,000 the number of jobs in Germany dependent directly or indirectly on K+S operations.

Furthermore, K+S had "not been suitably convinced" that the suitor was committed to maintaining "in their current form" the group's two businesses, potash and sales, "which are strategically, technically and economically intertwined".

K+S shares edge down

The bid rejection prompted a drop of 2.0% to E37.02 in K+S shares on Thursday, although they remained some 27% above where they stood before the PotashCorp deal was revealed a week ago.

Potashcorp's shares were up 0.44% at C$38.85 a share.

"There is one positive effect of PotashCorp's proposal - it is a crystallizing event for the fundamental rerating of K+S," Mr Steiner said.


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