Expert Testimony on Assessing Alleged Material Misrepresentations and Omissions in a Hostile Tender Offer Potash Corporation of Saskatchewan Inc. v. BHP Billiton LTD., et al.

The Situation

On 17 August 2010, Potash Corporation of Saskatchewan (“PCS”), a Canadian potash producer, publicly disclosed that its Board of Directors had rejected a $40 billion offer to purchase the company by BHP Billiton (“BHP”), a diversified natural resources company. On 20 August 2010, BHP communicated the same proposal directly to PCS shareholders in a hostile tender offer. The deadline to tender PCS shares was set for 18 November 2010. PCS filed a complaint on 22 September 2010 seeking a preliminary and permanent injunction to enjoin BHP from proceeding with its hostile tender offer. PCS alleged that BHP made material misrepresentations and omissions in its tender offer in violation of Section 14(e) of the Securities Exchange Act of 1934 (“the Williams Act”). The Williams Act was designed to insure that public shareholders who are confronted with a tender offer will not be required to respond without adequate information.

NERA's Role

NERA was retained by BHP to assess whether the alleged misrepresentations made before and after the tender offer was publicly disclosed had an impact on the stock price of the target company. NERA Senior Vice President Dr. Faten Sabry utilized econometric models to assess the significance of the returns to the target company’s stock price on the dates of the alleged misrepresentations, taking into account the effect of the tender offer on the price. Her statistical analysis established that there were no statistically significant price movements before or after the alleged misrepresentations, individually and in total. In addition, Dr. Sabry performed a content analysis of analyst reports in the time period following each of the alleged misrepresentations to determine the relevance of the alleged misrepresentation to the market. She found that the alleged misrepresentations were not mentioned by the majority of the analyst reports during the relevant time period and presented various metrics of the importance of the statements. Dr. Sabry submitted an expert report and a rebuttal report and provided deposition testimony and hearing testimony in October and November of 2010.

The Result

The Judge agreed to hear BHP's experts and refused to hear experts put forth by Potash. Dr. Sabry's testimony and reports were accepted by the court and well received, in what is among the first instances that an expert has testified about content analysis in a securities case.

Although BHP continued to believe its offer would have resulted in a significant net benefit to Canada, Saskatchewan, and New Brunswick, on 14 November 2010 BHP announced that it had withdrawn its offer, after determining that "the condition of its offer relating to receipt of a net benefit determination by the Minister of Industry under the Investment Canada Act could not be satisfied."