another reason why fertilizer will be hot commodity..

BHP may go hostile after $38.6 billion Potash Corp bid

MELBOURNE/NEW YORK (Reuters) - Global miner BHP Billiton may go hostile with its $38.6 billion bid for fertilizer group Potash Corp as early as Wednesday, a source said, as investors braced for a possible bid battle.

BHP Billiton, which wants to become the largest fertilizer supplier to a world where survival means more farm production, is considering bypassing the Potash Corp board, which has rejected its offer, and submit it directly to the Canadian group's shareholders, said the source familiar with the situation.

BHP Billiton declined to comment on Wednesday, saying only that it was reviewing its position after Potash Corp rejected its $130 a share offer, describing it as "grossly inadequate."

Shares in BHP Billiton slipped 3.5 percent on concerns among investors in the Anglo-Australian miner that it would be forced to over-pay for Potash Corp in what already amounts to the world's largest takeover offer so far this year.

"We're surprised at the multiple that they're prepared to pay for Potash Corp," said James Bruce, a portfolio manager at Perpetual Investments, which owns BHP shares.

BHP Billiton has long been interested in expanding into potash for its next spurt of growth, but investors had expected it to focus on growing its own assets, including the Jansen potash deposit in Canada.

BHP Billiton investors in Australia said that they expected the company to raise its offer, but were still calculating how much it could afford to pay.

Potash Corp of Saskatchewan has left the door ajar, saying it might consider a more attractive proposition.

There is some speculation that other bidders could enter the fray, but one investor said rival miners like Brazil's Vale and Rio Tinto would be hard-pressed to bid against deep-pocketed BHP Billiton.

"The organization (BHP Billiton) has exhibited a very disciplined approach to M&A activity historically. There's no reason it'll change from this point on," said Tim Schroeders, a portfolio manager at Pengana Capital, also a BHP shareholder.

Rohan Walsh, investment manager at Karara Capital, another BHP shareholder, agreed.

"It's a sizable acquisition. There are not too many companies that can do that. There are not too many dance partners Potash can dance with," Walsh said.

BHP is being advised by JPMorgan, while PotashCorp is being advised by BofA Merrill Lynch, Goldman Sachs and RBC Capital Markets.

(Reporting by Megan Davies and Michael Erman in New York and Sonali Paul in Melbourne)