Potash Corporation of Saskatchewan - The Drama Refuses to Cease

Close your eyes and think of the two Asian giants – China and India. Both are in a rapid economic growth, both are exposed to modern technology, both are eager to take a significant role in world politics and economy, and both have a population of over 2.5 billion people (India 1.2 billion, China 1.3 billion), nearly 70 times more than the population of Canada.

Now imagine that these 2.5 billion people are enjoying personal economic growth that makes them, among other things, increase their food consumption by 5 percent annually. In terms of capacity, the figure is equivalent to a situation where every Canadian increases his own food consumption by 350% annually. If those were the facts about Canada we would probably see a tremendous increase in food prices, around the clock work in the agricultural industry and hectic life in food stores and in the neighbourhood supermarkets.

The above situation is not an imaginary nightmare, but a complete living truth. Asia is growing fast, and so is the demand for food – the immediate benefit of an economic abundance. In order to supply enough food in quantity and quality for 2.5 billion people, fertilizers that increase the soil's productivity are essential, especially fertilizers that are made of Potassium, Phosphor and Nitrogen.

Potash of Saskatchewan is one of the world's biggest fertilizer manufacturers. The corporation controls over 20% of the global market. It has holdings in South America, the Middle East and it is a holder of about 11% of KIL (Israel Chemicals), a fertilizer manufacturer itself.

The corporation stocks, traded under the symbol POT in Toronto TSX and New-York NYSE went up on Wednesday by 1.25% to a price of $148.47 US. The share price reflects a market value of over 44B US Dollars and a P/E (Price/Earnings) of about 32!!!

The drama over Potash started two months ago. On August 18 2010, the British-Australian mining corporation BHP Billiton, who is deeply involved in projects related to world growth, identified the potential of the Saskatchewan Corporation and proposed to buy Potash for $39 billion or to pay $130 per share.

BHP’s bid is considered an attempt at a hostile takeover, due to a refusal by Potash’s board of management to BHP’s offer and BHP persistence to buy Potash despite that refusal.

Potash’s shares, which were traded until BHP’s bid at a price of $110, responded immediately and within two months shareholders enjoyed an up-side of over 34 percent, and the corporation's market value jumped by $12 billion.

Potash refused to BHP because in its point of view the proposal is underestimating the corporation's value. Since then two more players have joined the party, Sinochem of China, who sees and understands the potential profit in feeding 1.3 billion people in China, is checking the options to buy Potash, either by getting funds from the Chinese government or by funding the acquisition with the assistance and financial escort of HSBC (Hongkong and Shanghai Banking Corporation), so far without any significant progress.

The fear in Saskatchewan is that if Sinochem takes over Potash, it will increase the production rate, and by that will cause a price reduction and economic losses to the Canadian province of Saskatchewan.

An unexpected interest in Potash came from home. Rumours say that the OTPP (Ontario Teachers' Pension Plan) is having discussions with Singaporean wealth fund Temasek and Canadian mining company Teck Resources about launching a rival offer to BHP.

Whether it will be BHP, Sinochem, OTPP and partners or none of them, Potash shares keep their "bullish" roar up the hill.