One lesson of the financial crisis is that hostility pays. Between 2000 and 2008, on global Dealogic data, almost two-thirds of big takeover bids made directly to shareholders were rejected, withdrawn or otherwise thwarted. Since then, the failure rate has fallen to less than half. Resistance, if not exactly futile, is harder than it used to be. Just ask Dana Petroleum, struggling to fend off an unwanted approach from Korea National Oil Corporation.
That said, the chances of Sinochem of China going head-to-head with BHP Billiton in launching a hostile bid for PotashCorp are slim to vanishing. KNOC’s assault on Dana is an exception: state-owned companies very rarely go hostile, and when they do, they’re unsuccessful more often than not. CNOOC, China’s third-largest oil producer, tried the rough stuff in 2005, with an $18.5bn hostile bid for Unocal of California, and got precisely nowhere. For China, the moral was that listed Western targets can’t be bought without board – and government – approval. For politically sensitive assets, better to tread softly by taking a minority stake.
That is why Sinochem might decide to buy only a large enough stake to have a voice in the company’s future, perhaps 10 to 20 per cent, and maybe in tandem with less threatening institutions: Singapore’s Temasek, say, or a Canadian pension fund. It should present any purchase as a mercy mission, just as state-owned Chinalco did for its February 2008 dawn raid that picked up 12 per cent of Rio Tinto’s shares, partnering with Alcoa. That helped the Anglo-Australian miner fend off BHP, with absolutely no suggestion of creeping control, or any influence over pricing or strategy. Such talk came during the subsequent doomed “pioneering strategic partnership” with Rio. If it moves on PotashCorp at all, Sinochem should avoid such over-exuberance.