Topic: Energy Stocks

Investment update: This potash stock’s shares are benefiting from BHP Billiton’s takeover bid

In January 2005, we recommended fertilizer-maker Agrium Inc. as our Successful Investor newsletter’s “Stock of the Year.” At the time, the stock was trading at $19.51. By the end of the year, it had risen to $25.62, and investors who followed our advice saw a gain of 31%.

Agrium’s positive outlook led us to name it The Successful Investor‘s “Stock of the Year” again in 2006 (it went on to rise 42.1% that year), and again in 2007 (during which it jumped 88.8%.)

Rising food demand and ethanol use pushed potash stocks higher

Then, as now, fertilizer demand was rising on strong demand from developing countries, like India and China. As well, rising use of ethanol, which is mostly produced from corn, was pushing up commodity prices, as well as demand for fertilizer.

Recently, BHP Billiton‘s (symbol BHP on New York) $38.6-billion U.S. hostile takeover bid for Potash Corp. (symbol POT on Toronto), as well as high prices for wheat and other commodities, have reignited investor interest in potash stocks. And once again, Agrium is benefiting (read on for more on this broad-based fertilizer producer).

In response to rising investor interest, we wrote a new free report for TSI Network: Commodity Investments: Fertilizer Stocks and Potash Stocks That Will Profit from Rising Food Demand. (If you haven’t seen this new free report, click here to download yours right away.)

Potash Corp. takeover story has many twists and turns

Potash Corp. continues to trade above BHP’s $130.00 U.S.-a-share takeover offer. That suggests investors expect a higher bid for the company, either from BHP or another buyer.

This expectation results from rumours that Potash Corp.’s management is planning to buy a majority interest in the company, using borrowed funds. Some of these funds would probably come from several Chinese firms, as well as some sovereign wealth funds from China and other countries. (Sovereign wealth funds are state-owned investment funds that are usually financed by an economic surplus.)

However, sovereign wealth funds would only hold a minority stake in Potash Corp. That would help the potash stock’s buyers win regulatory approval for a takeover.


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Tax-loss threat could kill deal

The Government of Saskatchewan recently said that it could lose up to $100 million a year in corporate income tax if BHP’s takeover bid is successful. The province is currently considering whether to recommend the takeover to the federal government.

The potential for lost taxes makes it more likely that the federal government will block or impose conditions on the potash stock’s takeover. As well, Potash Corp. has launched a lawsuit to stop the takeover. The suit accuses BHP of making misleading statements about the potash industry to depress Potash Corp.’s share price prior to making its offer.

Investor interest in potash stocks propels Agrium higher

Meanwhile, Agrium Inc., $75.39 (Toronto symbol AGU), continues to gain from BHP’s attempt to buy Potash Corp. The stock is up 6% since BHP announced its takeover of Potash Corp. on August 17, 2010. That’s mainly because the takeover attempt has helped draw investor attention to other fertilizer companies.

Like Potash Corp., Agrium should continue to see strong demand for its fertilizers. Moreover, no single shareholder holds a majority interest in Agrium. That would make it easier for a buyer to take the company over. While that alone is not reason enough to buy Agrium, the possibility of a takeover adds appeal.

As a member of TSI Network, you may have already seen Commodity Investments: Fertilizer Stocks and Potash Stocks That Will Profit from Rising Food Demand. If you haven’t yet read this free report, click here to download your copy today. I’d also encourage you to share the report with a friend. It’s my “thank you” just for signing up for my free daily updates.

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