updated 8/17/2010 2:30:46 PM ET 2010-08-17T18:30:46

Canadian fertilizer producer Potash Corp. of Saskatchewan Inc. said Tuesday it has rejected an unsolicited takeover bid from BHP Billiton Ltd. worth about $38.49 billion as "grossly inadequate."

The Potash board also adopted a shareholder rights plan, known as a poison pill, to prevent any entity from buying up more than a 20 percent stake in a move to buy time to better develop other alternatives itself.

BHP Billiton, an Australian natural resources company, is offering to buy Potash for $130 per share, a 16 percent premium to the stock's closing price Monday. Shares of Potash surged above the bid price in midday trading, indicating that investors expect to garner a higher offer.

Potash executives had strong words for BHP in a conference call with analysts on Tuesday. The company said it "believes the timing of the proposal is highly opportunistic and an ill-disguised attempt" to drive up Potash's share price before coming in with a higher offer.

"I am not saying that we are opposed to a sale, but what I am saying is we are opposed to a steal of the company," President and CEO Bill Doyle said.

Potash said the timing of the offer is particularly troubling considering it believes its stock is still undervalued, as the fertilizer industry has only begun to emerge from the economic downturn. Also, recent industry consolidation and Agrium's bid for Australian grain producer AWB earlier this week "demonstrate the opportunity that major industry players see in the agricultural space and are anxious to capitalize on."

Fertilizer company Agrium late Sunday offered more than $1 billion for AWB in an attempt to swipe the company from rival suitor GrainCorp Ltd. Agrium lost its hostile takeover attempt for fertilizer producer CF Industries earlier this year, and officially dropped its $5.5 billion bid in March. CF acquired Terra Industries for $4.7 billion the following month, creating one of the world's largest fertilizer companies.

Large agribusinesses are aggressively attempting to bulk up so that they can compete with industry giants like Cargill. On Tuesday, Cargill reported net income of $2.6 billion on revenue of $107.9 billion for the year ended in June, as ingredient costs fell and consumer demand began to strengthen.

Potash consumption has been growing over the past decade because of greater demand for fertilizer from developing nations. Potash is any of several compounds containing potassium, used chiefly in fertilizers. Its main markets are China, the U.S., Brazil and India.

Last month Potash Corp. reported its second-quarter net income more than doubled to $472 million, or $1.55 per share, as revenue surged 68 percent to $1.44 billion.

BHP Billiton confirmed it has approached the Canadian company, and said Potash's board has not yet agreed to engage in discussions. BHP said it continues to review its options. Its U.S.-listed shares fell $1.51, or 2 percent, to $70.43 in morning trading.

BHP has been ramping up its potash mining business in Canada for the past four years. It holds exploration permits for over 7,338 square kilometers in Saskatchewan, where its best prospect so far — the "Jansen Project" — is expected to begin producing potash from 2015.

BHP bought out its Anglo Potash Ltd. joint venture in Canada for $282 million in 2008 and purchased Athabasca Potash Inc. earlier this year for about $320 million, extending its potential exploration acreage in Canada to over 14,000 kilometers. The mining giant has said it sees potash as a relatively low cost business that offers it significant growth.

The offer sent shares of other fertilizer makers jumping in morning trading. Shares of Mosaic Co. rose $4.35, or 8.5 percent, to $55.48, while CF Industries Holdings Inc. shares were up $4.58, or 5.4 percent, at $89.17. Intrepid Potash Inc. rose $1.28, or 5.3 percent, to $25.24, and Agrium Inc. climbed $3.11, or 4.7 percent, to $68.98.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Video: Potash: Bid "grossly inadequate"

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