BHP Billiton (BHP)1, a global natural resources company, has recently launched a hostile bid (the bid) to purchase PotashCorp (Potash)2, a leading potash producer based in Canada. This proposed acquisition is likely to have an impact in the Chinese potash industry.
The market for the supply of potash is highly concentrated, with Potash being one of the large players globally. According to Potash's 2009 annual report, Potash currently supplies 20% of world production. According to media reports, China is one of the largest importers of potash in the world (along with India, the United States and Brazil) and it appears that chinese companies buy up approximately 7% of the output of Potash(3). In this regard, the sale of PotashCorp is likely to have some impact on Chinese potash buyers and in the fertilizer industry in China.
The media has reported that there has been a lot of concern amongst the players in the Chinese agriculture industry in relation to the bid. This is not BHP's first bid to buy up a potash company – in 2008 and early 2010, BHP acquired Canadian potash explorers Anglo Potash Limited and Athabasca Potash Inc. Hence, if the bid is successful, BHP will become a major player in the global potash industry. Chinese agricultural industry players (including fertilizer distributors, industry associations and even farmers) are concerned that BHP will significantly raise potash prices – and in light of the level of concentration in the global potash market – customers would not have many other choices. In light of this, Chinese agricultural industry players are currently urging the antitrust authorities in China to investigate into this potential acquisition and specifically into the acquisition's impact on the potash industry in China.
Pursuant to the Anti-Monopoly Law (AML), merging companies which meet specified turnover thresholds (in relation to their global turnover and turnover within China) are required to seek clearance in respect of their mergers from the Ministry of Commerce (MOFCOM).
It is unclear if BHP and/or Potash meet the turnover thresholds and would subsequently be required to file a merger control notification in China. If so, this would be an interesting case to follow, given the highly concentrated global potash market.
Even if BHP and/or Potash did not meet the turnover thresholds in China, pursuant to the merger control regulations in China, MOFCOM would still have the right to commence investigations into this acquisition (provided they had a reason to believe that the acquisition has or may have the effect of eliminating or restricting competition in the relevant market in China). At the conclusion of any such investigations (and at the conclusion of the acquisition), if MOFCOM is of the view that the acquisition has or may have the effect of eliminating or restricting competition in China, then MOFCOM would be able to apply a variety of remedies, including fines on the merging parties.
Currently, it is unclear if the BHP-Potash deal will go ahead. There is some speculation that Chinese state owned enterprise Sinochem Group, could launch a competing bid. Potash, owns a 22% stake in Sinofert (a Sinochem subsidiary), one of China's largest fertilizer producer.
It will be interesting to follow the developments in relation to this BHP-Potash bid – it appears that significant antitrust issues may arise in relation to this proposed deal.
1. BHP Billiton is made up of BHP Billiton Plc (based in the UK) and BHP Billiton Limited (based in Australia).
2. Potash is short for potassium carbonate it is a globally traded commodity used in fertilizers.
3. See for instance: http://www.reuters.com/article/idUSTRE67G1R620100902
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.