September 22, 2010 11:34 AM

Jones Day Gets Real Hostile in Potash-BHP War

Posted by Zach Lowe

The big news of the morning: Potash Corporation of Saskatchewan and its counsel at Jones Day have filed a federal suit in U.S. district court in Chicago seeking to block BHP Billiton's hostile $39 billion mega-offer for the Canadian fertilizer maker, according to The New York Times and court records included in a regulatory filing this morning. 

The suit accuses BHP (which is being advised by Cleary Gottlieb Steen & Hamilton, among other firms) of lying in its public statements about its Potash bid and of structuring its offer in a way that may violate Canadian securities laws, court records show.

Among Potash's claims: Though Canadian rules say a tender offer isn't complete until shareholders of the targeted company tender two-thirds of that company's outstanding shares, BHP Billiton has structured its offer in such a way that it would be consummated if a mere majority of Potash shares are tendered. That, the suit claims, opens up the "real possibility" that many Potash shareholders who want no part of a BHP Billiton takeover will nonetheless be swept up in it.

The suit also accuses BHP of failing to disclose that the size of its bid is likely big enough to require a vote of its own shareholders--a vote that could make closing the deal even trickier. And, in perhaps the suit's most interesting claim, Potash argues that BHP engaged in an overstated long-term public relations campaign to drive down the perceived value of Potash. How? By announcing its own intention to enter the potash market, particularly on Potash's home turf in Canada, as well as by making several small deals to meet that goal. Potash claims this strategy was at least in part a ploy to disguise BHP's secret long-term interest in buying Potash. The idea, Potash alleges, was for BHP to position itself publicly as a potential competitor to Potash and a big-time fertilizer producer--big enough to increase the supply of potash at the market and thereby drive down commodities prices and (perhaps) Potash's value. 

But Potash claims BHP had its eye on buying it all along. Indeed, the suit claims BHP's chief executive, Marius Kloppers, told his counterpart at Potash in August that BHP had been eyeing a Potash bid since 2001 and "more intensely" since 2005. 

The suit also claims that BHP has tried to rush the deal in order to nab Potash on the cheap, before the fertilizer market makes an anticipated comeback. The hostile offer values Potash at $130 per share; Potash shares, which have been trading above that since BHP unveiled its offer, reached a high of about $240 apiece before the broader economic collapse. 

The suit isn't the only Potash-BHP news of the day: Sinochem, a state-owned Chinese company, is pondering its own bid for Potash, according to the NYT. China buys lots of raw materials and other resources from BHP, and it is concerned about a large move that would give BHP an even tighter grip on resources, the NYT reports.

The full law firm lineup advising BHP on the deal also includes: Slaughter and May and Blake, Cassels & Graydon, according our prior reporting. 

Aside from Jones Day,  Stikeman Elliott and Allen & Overy are advising Potash. 

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