Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Sell the Potash/China Rumor


It does not seem plausible that POT will be sold to a Chinese company.


Shares of Potash Corp. of Saskatchewan (NYSE:POT), the world's largest producer of its namesake fertilizer, are up about 1.4% Thursday on volume that has already eclipsed the daily average on speculation the company could be a takeover target for a Chinese company.

All traders need to do is review some recent history to realize this is setting up as the ideal "buy the rumor/sell the reality" trade. In 2010, BHP Billiton (NYSE:BHP), the world's largest mining company, made a hostile $38.6 billion offer for Potash that would ultimately be scrapped because the Canadian government did not want the company falling into foreign hands.

BHP is based in Australia. In theory, it should be easier for an Australian, British, or US firm to acquire a Canadian rival than it is for a Chinese company to do the same. Even if that was not the case, it still does not seem too plausible that A) Potash is even for sale and B) That if it is, it will fall into Chinese hands. Here is why.

BHP offered $38.6 billion for Potash two years ago. Even though the shares have fallen since then, Potash's current market cap is almost $38 billion. The company can be considered a mining/materials play and for all deals in that sector valued at $5 billion or more since 1999, the average takeover premium has been 30%, according to Bloomberg.

Say Potash has a market cap of $38 billion and that means $49.4 billion is 30% above that. That significantly lowers the pool of potential suitors. In 2010, the company Beijing deemed as its preferred acquirer of Potash was Sinochem International, China's largest chemicals trader. Sinochem's problem was that it needed to finance the deal on its own and could not. Ultimately, the company made no credible offer for Potash.

< Previous
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos