Potash Corp. may face German government stake in K+S

A rail car is seen at Potash Corp.'s Lanigan mine in Lanigan, Sask.

Quebec and Germany may have more in common than you think.

Handelsblatt, the German newspaper that was first to interrupt the news that Potash Corp. of Saskatchewan Inc. was looking to purchase K+S AG, is reporting that Germany may ask government-owned KfW Development Bank to buy K+S shares to bar Potash Corp.’s takeover effort.

Ben Isaacson, a Scotiabank analyst, reminded clients that such like almost happened in Quebec not long ago.

Claiming Rona Inc. was a strategic Canadian asset that must be protected from foreign ownership following a bid from Lowe’s Cos. Inc., Quebec Finance Minister Raymond Bachand in 2012 suggested the province’s investment arm, Investissement Quebec, could buy Rona shares.

Isaacson also noted that Quebec considered leading a coalition of investors in a formal buyout.

Similarly, Germany looks dedicated to preventing Potash from acquiring K+S, with the analyst suggesting the government’s actions may have gone beyond what the company had intended. However, Bloomberg cited an unnamed source that said the German government doesn’t intend to acquire a stake in K+S.

“Sentiment toward keeping K+S in German hands is booming,” Isaacson said. “Accordingly, the hill in Potash Corp.’s uphill battle is rapidly becoming Mt. Everest – not insurmountable, but a formidable challenge.”

Meanwhile, he noted that the recent decline of roughly 10 % in K+S shares is probably due to more factors than simply the lower probability of a takeover.

“In reality, potash market fundamentals still weaken,” the analyst said, adding that if the deal fails, K+S shares will likely fall below the pre-offer price of 29 euros, “further supporting our short K+S thesis.”