K+S rejects PotashCorp takeover offer as too low

Frankfurt | Reuters –– German potash miner K+S rejected PotashCorp’s 7.9 billion-euro (C$11 billion) takeover bid Thursday, saying it was too low and the Canadian suitor could be planning to dismantle the company, putting jobs at risk.

K+S, owner of the Morton Salt brand, said the proposal lacked firm commitments to protect the more than 14,000 K+S employees worldwide and that it had no trust in “vague” pledges that had been made.

The takeover offer of 41 euros per share “completely disregards” K+S’s own Saskatchewan mining project, known as “Legacy”, which should be worth up to 21 euros per share when future cash flows from 2017 onward are taken into account, the German company said.

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K+S, which is the world’s largest salt supplier but derives most of its earnings from potash fertilizers, also said it was not convinced PotashCorp was interested in continuing the German group’s fertilizer and salt businesses in their current form.

K+S shares closed down two per cent in Frankfurt at 37.02 euros after the offer was rejected.

K+S CEO Norbert Steiner said Saskatoon-based PotashCorp was bound to slash K+S’s current production of potash.

“PotashCorp sites in Canada produce at significantly lower costs than our German sites. But they are under-utilized. Obviously, it makes ultimately little sense for Potash Corp to operate our German sites at the current level,” Steiner said in a video posted on the company’s website.

The offer values the German group’s equity at 7.85 billion euros, or 9.5 billion euros when net debt of 1.65 billion euros is included.

K+S, formerly part of BASF, said the stock market was currently underrating its salt business and not attributing any value to Legacy, the first new mine in the potash industry in almost 40 years.

Legacy, under construction at Bethune, Sask., northeast of Moose Jaw, is expected to start producing by the end of 2016.

Still, Bernstein Research analyst Jeremy Redenius said K+S “left the door open, implying they would accept a bid of 50 euros per share.” He added K+S’s 21 euro-per-share price tag for Legacy to the share price of 29 euros before PotashCorp’s approach became known.

K+S ruled out opening its books to the suitor for now and declined to say what PotashCorp would need to offer.

People familiar with the matter told Reuters on Sunday that PotashCorp did not plan any closures at K+S.

K+S said it expects earnings before interest, taxes, depreciation and amortization (EBITDA) to reach 1.6 billion euros by 2020, up from almost 900 million in 2014, helped by the Legacy project.

The German group agreed to buy the license to develop the Legacy mine in 2010 to secure growth in the face of an expected depletion of its existing German potash reserves in 35-40 years.

– Ludwig Burger is a senior Reuters correspondent based in Frankfurt. Additional reporting for Reuters by Patricia Weiss.

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