* BHP set to report 50 percent jump in H2 profit to $6.9 bln
* Potash expects superior offer or alternative to BHP
* Investors seek $162/shr bid, analysts $157-Reuters poll
* Bid hike could require BHP shareholders' nod under UK rule
* Rio Tinto, China partner weigh Potash bid - report
(Adds shares, links to Insider TV, Breakingviews)
By Sonali Paul
MELBOURNE, Aug 24 (Reuters) - BHP Billiton's monster earnings expected this week could strengthen its hand in its $39 billion bid for fertiliser group Potash Corp and intimidate any rival bidders.
The world's biggest miner is set to report a 50 percent jump in second-half profit to $6.9 billion on Wednesday, sending a loud warning shot toward Potash, which is trying to line up white-knight bidders to fend off the world's largest miner.
"Clearly it's going to be a very good result ... The balance sheet is in excellent shape and the cash flow will be significant," said James Bruce, a portfolio manager at Perpetual Investments, which owns BHP shares.
On Monday, Potash, the world's biggest fertiliser company, talked up the chances of a counterbidder, in a move analysts said might be aimed at coaxing a higher bid from BHP.
Canada's Globe & Mail newspaper web site, citing unnamed sources, said global miner Rio Tinto might be considering a bid for Potash with a Chinese partner.
Yet investors, analysts and bankers have played down the chances of Rio bidding for Potash as it has only just slashed $40 billion in debt from an ill-timed takeover of Alcan in 2007 and plans to spend $13 billion on projects through 2011.
"I would be very surprised," said Adam Dixon, portfolio manager at Ausbil Dexia, which owns BHP and Rio shares. "Rio has a very full pipeline of organic growth opportunities. Coupled with this, the company is still busily integrating the Alcan business that it bought not so long ago," he said.
"In my mind it has enough quite exciting growth prospects without actually having to embark on further large scale M&A."
NOT A FARMER
Rio, which sold off its potash assets to help pay down a mountain of debt only two years ago, declined to comment on the newspaper report. Last week, Rio Chief Executive Tom Albanese declined comment on whether the company would consider a bid.
Asked whether his company had any interest in agriculture, he said: "I'm not a farmer. I'm a miner."
Potash chief Bill Doyle, who stands to earn half a billion dollars from a deal, said his firm was considering all options, including joint ventures and levering up Potash's balance sheet.
He did not name the company's price but said it should be "a hell of a lot more than the price on the table".
While BHP's results should be impressive -- the company has effectively confirmed market expectations -- shareholders are nervous over the bid and want to hear more on why it wants to make a pricey acquisition in a new business area.
They want to be persuaded the deal makes more sense than using the company's cash pile to buy back shares and boost earnings per share instantly.
"When you're paying $40 billion (cash) at a minimum -- they'll have to up that -- there's not a lot of room for error if it doesn't quite go your way," said Peter Chilton, an analyst at Constellation Capital Management, another BHP shareholder.
Persuading investors could become more crucial if BHP is forced to raise its offer to win over Potash shareholders.
As the bid stands, BHP does not need approval from its own shareholders for the bid. However, under UK listing rules, any bid worth at least 25 percent of the acquirer's total market capitalisation requires shareholder approval.
HIGHER BID
BHP would trigger that rule if it raised its bid for Potash by at least 22 percent to $47 billion, according to Reuters calculations.
Few expect a deal to go ahead at $130 a share and a Reuters poll of 11 global shareholders in Potash indicated an offer 25 percent higher at around $162 a share could be required to win support for a takeover.
Potash shares in New York, which have gained about a third since news of BHP's bid emerged, ended on Monday up 0.5 percent at $150.20. BHP shares in London fell 1.1 percent by 1017 GMT in a weak sector due to lower copper prices. They have shed 8 percent since investors learned of its Potash offer.
BHP's low gearing and massive cashflows have allowed it to line up $45 billion in debt funding for its bid and analysts see those cashflows growing in the year ahead to as much as $40 billion from $24 billion forecast for 2009/10.
Once BHP's results are out, Kloppers and his team are free to begin their charm offensive with Potash shareholders.
Other potential white knights are rapidly ruling themselves out of a bidding war. On Monday, Brazil's Vale denied talk it was lining up a bid.
Aluminum Corp of China Ltd (Chalco), which wants to diversify, said on Tuesday it was targeting coal and rare earth businesses but sidestepped talk of interest in potash.
"Chalco's investment should meet our investment criteria. We are not interested in just everything," Chairman Xiong Weiping told reporters. (Editing by Mark Bendeich and David Holmes)