Fertilizer War: China Sets Sights on Potash

NEW YORK (TheStreet) -- As the takeover battle continues between Potash(POT) and BHP Billiton(BHP), the China White Knight Scenario has suddenly gained momentum.

There have been several developments.

>>Potash-BHP: the Fertilizer War From A to Z

First, Chinese government authorities -- highly concerned about the ways and means of controlling its food supply -- have evidently "ordered" companies in the People's Republic to investigate possible ways to thwart BHP's effort to acquire the world's largest fertilizer producer. This is according to a report by Reuters Friday, which cited "a source with direct knowledge of the matter."

Apparently, Sinochem, the sprawling industrials giant, has obeyed the government and scheduled meetings with investment bankers at HSBC, Citigroup(C) and Morgan Stanley(MS), the newswire reported. That adds color to reports on Thursday from The Wall Street Journal that Sinochem had sat down with bankers at HSBC.

Potash CEO Bill Doyle has, since the beginning of the affair, maintained that his company has both approached, and been approached by, third parties interested in countering BHP's $130-a-share offer.

Sinochem already has connections with Potash. The megacompany controls Sinofert, China's largest fertilizer purveyor, which also distributes to farmers in China the potash and other crop nutrients that it imports from overseas potash cartels. As such, Potash Corp. holds a 20% stake in Sinofert. (Oh the tangled webs.)

The details come on the heels of disclosures Thursday by one of Potash's biggest shareholders, a pension fund, that Chinese parties had approached it about partnering in a bid to acquire the Saskatchewan company. According to Alberta Investment Management (also known as AIMCo), it turned down the offer. The fund didn't name the group or groups who made the approach.