Potash prices are crucial to how far BHP Billiton can stretch its US$39-billion hostile bid for Canada's Potash Corp. of Saskatchewan. The miner's offer is essentially a bet on demand for the commodity, which accounts for the bulk of the fertilizer giant's value.
According to calculations by Reuters Breakingviews, every US$50 increase in the long-term price of a tonne of potash adds about US$20 to Potash Corp.'s value. BHP's offer reflects the current market. But if prices rocket, so too will the value of its target.
To value Potash Corp., start by looking at its other businesses. The company's phosphate and nitrogen divisions are worth roughly US$11-billion, according to Morgan Stanley's estimates of what it would cost to rebuild them. Potash Corp. also owns stakes in smaller listed rivals which have a current market value of US$8-billion. (more)