Potash Corp. of Saskatchewan Tuesday rejected a hostile takeover bid from the world's largest mining company as "grossly inadequate."

The all-cash bid for the Canadian fertilizer producer by Australia's BHP Billiton is worth about $38.49 billion US, or $130 per share. That was a 16 per cent premium over Monday's closing price.

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Potash Corp's Cory potash mine in Saskatoon. Potash consumption has been growing over the past decade because of greater demand for fertilizer from developing nations.

Potash shares closed at $143.17, up $31.02, or 28 per cent,  in New York, suggesting the market expects competing bids or an improved offer. More than 47 million shares changed hands, compared with a three-month average of 4.9 million.

The Potash board also adopted a shareholder rights plan, known as a poison pill, to buy time to look for better offers. The poison pill prevents any company from buying up more than a 20 per cent stake in Potash.

The timing was "highly opportunistic and an ill-disguised attempt" to drive up Potash's share price before coming in with a higher offer, Potash executives said in a conference call with analysts.

"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," CEO Bill Doyle said.

"I think the pricing [of the bid] reflects the fact the stock has retraced quite a bit of ground from its roughly $200 per share level from a year and a half ago and given that commodities are taking a bit of a breather right now, this is opportunistic on the part of BHP," said John Stephenson, portfolio manager at First Asset Funds.

"You can absolutely count on Potash to fight this tooth and nail," he added.

'We also could see Potash Corp. making a defensive offer for another potash producer.'—Richard O'Reilly, S&P Analyst 

"Potash Corp. is in play," Richard O'Reilly, industrials analyst with Standard & Poor's Equity Research, said in a note.

"We also could see Potash Corp. making a defensive offer for another potash producer."

No matter what the outcome is, Potash's head office will stay in the province, according the the Saskatchewan government.

Energy and Resources Minister Bill Boyd said head office jobs are guaranteed by law there.

Potash said it believes its stock is still undervalued, as the fertilizer industry has only begun to emerge from the economic downturn.

Recent industry mergers 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."

Another Canadian fertilizer company, Calgary-based Agrium, on Saturday 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.

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Potash Corp. 3-month chart

Bond rating agency DBRS announced it was placing the current credit rating of Potash Corp. under review until it becomes clear whether there will be other bids.

It said a successful takeover by BHP might mean Potash's rating would improve, given BHP's better creditworthiness.

Potash consumption has been growing over the past decade because of greater demand for fertilizer from developing nations.

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 per cent to $1.44 billion.

BHP Billiton said Potash's board has not yet agreed to engage in discussions.

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 kilometres in Saskatchewan, where its best prospect so far — the "Jansen Project" — is expected to begin producing potash in 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 kilometres.

The mining giant has said it sees potash as a relatively low-cost business that offers it significant growth.

Canada to review bid

Canadian Industry Minister Tony Clement said the government would review the bid closely, noting that the acquisition of a controlling interest in a Canadian company with assets of $299 million or more by a foreign investor is always subject to scrutiny.

"Where a transaction is subject to review, the investor must obtain my approval prior to implementing the investment," the minister said in a release.

"I only approve applications for review where an investment demonstrates that it is likely to be of net benefit to Canada."

With files from The Associated Press and The Canadian Press