Shares of Potash Corp. (NYSE: POT) are trading considerably higher this morning after the company’s board announced they have rejected BHP Billiton’s (NYSE: BHP) bid to buy out the company for $130 per share in cash. Potash shares are presently trading at $144.40, up $32.50 or 29%, well past the initial offer price from BHP.
BHP is an Australian based diversified mining conglomerate who has been looking for a more solid footing in the fertilizer sector. Potash itself is the world’s single largest producer of this essential component in fertilizing crops and along with Mosaic (NYSE: MOS), controls a dominant share of the North American fertilizer market. Shares of Mosaic are also trading higher, up $5.42 to $56.55 for a 10% gain.
Following the unsolicited takeover offer, the board of Potash announced the adoption of a shareholder rights plan that would afford present shareholders the right to purchase additional shares at a substantial discount to market prices should any one new shareholder purchase 20% or more of the company’s outstanding stock. In essence, this measure is a “poison pill” that protects the company from any hostile takeover offer, and affords the board the opportunity to consider and negotiate any possible deal.
The sector on the whole skyrocketed in the first half of 2008 as global commodity prices, led by oil, rose mightily across the board. Many of these companies levered up to take advantage of what had been both escalating demand and rising prices, but when commodities collapsed with the rest of asset classes in the latter half of 2008, the fertilizer companies proved just as vulnerable as anyone else. More recently many reputed investors had expressed interest in both the value and growth present in the fertilizer sector.
The fertilizer sector on the whole has been ripe with takeovers and rumors during the past two years. Just last year, CF Industries (NYSE: CF) completed a long battle to buyout Terra Industries while simultaneously fighting off a hostile takeover bid of its own shares from Agrium (NYSE: AGU). The fertilizer stocks had been considerably weaker than the broader markets heading into the July 1st recent bottom. However, between the dual catalysts of the Russian fires and this offer to buy Potash, the sector’s stocks have rallied substantially.
Disclosure: Long AGU