Anglo-Australian mining giant BHP Billiton yesterday launched an enormous hostile takeover bid for Canada’s Potash Corp which values the world’s largest fertiliser producer at $40 billion.

The formal bid, worth the equivalent of €31 billion, would allow the energy and metals giant to expand into the agricultural sector amid soaring wheat prices, keen food demand and a rising global population.

“BHP Billiton today announced its intention to make an all-cash offer to acquire all of the issued and outstanding common shares of Potash Corporation,” it said in a statement, one day after Potash snubbed an unsolicited approach.

“The offer values the total equity of Potash Corp at approximately 40 billion US dollars.”

Potash is a key agricultural fertiliser that is widely used in farming to replenish nutrients in soils and increase crop yields.

“The acquisition will accelerate BHP Billiton’s entry into the fertiliser industry and is consistent with the company’s strategy of becoming a leading global miner of potash,” said Australia-based BHP, the world’s biggest miner.

“Potash Corp’s potash mining operations are a natural fit with BHP Billiton’s greenfield land holdings in Saskatchewan, Canada.

“Potash Corp will provide BHP Billiton with an immediate leadership platform in the global fertiliser industry and further diversify BHP Billiton’s portfolio,” it added

However, the cash offer was pitched at €130 per Potash share, the same level as BHP’s informal bid that Potash had rejected on Tuesday, arguing that it substantially undervalued the company.

As a result, BHP chairman Jac Nasser said his company had decided to put its offer directly to Potash investors.

“We firmly believe that Potash Corp shareholders will find the certainty of a cash offer, at a premium of 32 per cent to the 30-trading day period average, very attractive and we have therefore decided to make this offer directly to those shareholders,” Nasser said in the statement.

BHP Billiton is the world’s biggest miner and produces coal and iron for the global steel industry, as well as a host of other metals and commodities along with oil and gas.

Its fortunes have been built in recent years on soaring demand from China’s booming economy but it also has huge interests across the globe.

On Tuesday, Potash had slammed BHP’s unsolicited approach as “grossly inadequate” and outlined a plan to prevent a hostile takeover.

The Canadian firm said it would adopt measures allowing ordinary shareholders to buy more shares cheaply should an outside party build up a single stake in the company of 20 per cent or more.

This so-called ‘poison-pill defence’ plan, which requires regulatory approval, would make it much more expensive and difficult for a hostile suitor to buy up an ever increasing amount of shares and so win control. BHP said yesterday that its takeover offer was dependent on the termination of this plan, as well as regulatory approvals.

The group recently paid $320 million for Athabasca Potash Inc, also based in Saskatchewan which holds more than half the world’s reserves of potash.

Jonathan Jackson, head of equities at brokers Killik & Co, praised the takeover bid because it allows BHP to expand into the agricultural sector and diversify its business.

“First, it increases the group’s exposure to the structural theme of rising population and grain demand and limited arable land,” he said, adding that he expected BHP to raise its offer bid in due course.

“The second benefit of the deal is the increased diversification that it brings.

“BHP Billiton currently has significant positions in industrial commodities such as coal, iron ore and oil.

“The Potash Corp assets are slightly different from the more traditional industrial cycle exposure of metals and energy and should reduce the level of volatility of earnings over the (business) cycle.”

However, Citigroup analysts argued that BHP would be better off developing its own existing potash project in Canada.

“In our opinion, BHP would be better off not pursuing an acquisition of Potash Corp,” they wrote in a note to clients.

“The cost of obtaining a friendly deal that would be needed to gain approval ... looks too high.”

They added: “We believe BHP would gain more long term value by buying back its own shares or continuing to develop the Jansen Potash project.”

BHP said yesterday that it would continue to press ahead with its Jansen project, which is also located in Saskatchewan.