Fertile takeover territory

BHP/Potash: Canada's takeover rules make Potash Corp of Saskatchewan easier to snare. Weaker protections for minority shareholders and stricter limits on poison pill defences should aid BHP Billiton’s $39 billion hostile bid. But, the miner may face a bigger hurdle closer to home.

BHP’s $130-a-share offer is conditional on it being accepted by just 50 per cent of Potash Corp's shareholders. However, it needs two-thirds of the fertiliser group’s shares in order to forcibly buy up the rest. That hurdle is lower than in the United States and the UK, where a bidder needs 90 per cent before it gains full control.

The Canadian rule not only makes it easier for BHP to take control of Potash Corp. It also makes it harder for rivals to frustrate the bid by, say, buying a large minority stake.

Canada’s rules on poison pills also make it hard for Potash Corp to erect a “just say no” defence. The shareholder rights plan adopted by the company effectively prevents any buyer from increasing its stake above 20 per cent.

But, now that BHP has launched a formal offer, the poison pill expires in 90 days and BHP can appeal to the local securities commission to have it removed before then.

Similar takeover defenses in the United States are trickier to remove and can delay takeovers by up to two years or frustrate them entirely. Only 37 percent of hostile deals launched in the United States last year were completed, compared with 58 percent in Canada, Thomson Reuters data shows.

Of course, Canadian companies can find other crafty ways to deter hostile advances. But, Potash Corp, which has played up the prospect of rival bids, would find it hard to reconcile such frustrating tactics with its value-based defence.

With Potash Corp shares trading at about $145, BHP will have to raise its bid in order to snare its prize. But, that will complicate the deal. Under UK rules, BHP’s current bid doesn’t require shareholder approval because it amounted to less than 25 percent of the miner’s market value at the time the offer was launched. The calculation changes if BHP sweetens its offer.

At current prices, a bid worth $145 or more per Potash Corp share would trigger a vote of BHP shareholders. That means BHP will have to take care to show it is being disciplined. With Canadian takeover rules favouring the bidder, that is probably just as well.