M&A Watch: Rival bidders to BHP Billiton for Potashcorp likely hampered by strategy and lack of firepower

BHP Billiton's USD 40bn all-cash bid for Canada-based PotashCorp, the world leader in fertiliser raw materials (NPK, nitrogen, phosphate and potash), has fuelled all kinds of speculation as to the possibility of rival bidders. PotashCorp has flagrantly rejected the offer, the world’s biggest diversified resources group. Various news agencies, quoting unnamed sources, have cited possible rival bids from Brazilian supergroup Vale, the world’s No 2 miner by value, and also Rio Tinto, which ranks No 3. On Monday, Vale flatly rejected the speculation. For its part, Rio Tinto in early 2009 sold Vale its potash assets in Argentina and Canada, for USD 850m. Vale then continued to make acquisitions in the fertiliser sector, mainly in Brazil.

Prevailing speculation about which firm may do what next seemingly overlooks strategies, and perhaps more important, financial firepower. Rio Tinto not only sold off its interests in potash, but also continues to recover from its horribly expensive USD 38bn cash buy of Alcan in 2007. 

The collapse in commodity prices across 2008 saw Rio Tinto forced to let go of news on 12 February 2009, that following crippling debt of USD 38.6bn on 31 December 2008, it would seek to raise USD 12.3bn from smaller rival, unlisted Chinalco, by selling equity stakes in some of Rio Tinto’s most prized aluminium, copper and iron ore assets.

Chinalco holds 38.6% of listed Chalco, a big Chinese aluminium producer, and also 26.6% of listed Yunnan Copper.

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