BHP Chases Its Prey

As my colleague Toby Shute told you on Tuesday, the world's biggest mining company, Australia's BHP Billiton (NYSE: BHP  ) , is hot on the trail of the world's largest potash producer, Potash Corp. of Saskatchewan (NYSE: POT  ) .

This isn't the first time we've watched BHP chasing its prey. Just a couple of years ago, and for what seemed like an eternity, BHP chased its mining rival Rio Tinto (NYSE: RTP  ) all over hill and dale, only to walk away when commodities prices began to nosedive.

Now, BHP is on the prowl again. The big company has offered $38.6 billion, or $130 a share in cash, for the Canadian fertilizer producer.

But, Potash Corp.'s board, which controls about 20% of the world's supply, is having none of BHP's attention, calling the offer "grossly inadequate." And while Potash CEO Bill Doyle won't define an acceptable offer, The Wall Street Journal noted on Tuesday that those close to the company maintain that an offer should reflect the share price near $240 that Potash Corp. reached at the height of the commodities bubble. Right!

However, BHP CEO Marius Kloppers pointed out Wednesday that $130 constitutes a 20% premium above the Potash share price prior to Mr. Doyle being approached by BHP. And it's a 32% premium above its average price during the 30 days before that.

But there's another approach to gaining control of Potash, rather than jacking up the per-share offer to $140, or $160, or ...

BHP is simply taking the offer directly to Potash Corp. shareholders. That's called "going hostile," although to me it seems more sensible than hostile. The hostile offer must be accepted by at least 50% of the Potash holders. But as BHP Chairman Jac Nasser said in a written statement, "We firmly believe that Potash Corp. shareholders will find the certainty of a cash offer, at a premium of 32% ... very attractive."

There are those who believe that Brazil's miner Vale (NYSE: VALE  ) or even Rio Tinto could jump into the fray. I think that's unlikely. In fact, it seems that BHP stands an excellent chance of emerging victorious in this fertilizer fight.