POTASHCORP, AGRIUM SAY “I DO”

Merger will create a potash industry giant

The Potash Corporation of Saskatchewan (PotashCorp) and Agrium Inc. have merged into what one industry analyst has called a Canadian champion on the world stage. By some estimations, the deal is worth US $36 billion.

Word of the talks was reported earlier this month, with both parties saying they were considering what a PotashCorp media release termed a “merger of equals.”

Steve Hansen, equity analyst with investment firm Raymond James, says the merger results in an entity that will be the global leader in both wholesale fertilizer production and agriculture retail. “Depending on your vantage point, there’s some good rationale around putting the two companies together. Certainly there’s a lot of synergy between the two parties,” he said.

PotashCorp is the world’s largest fertilizer company by capacity, while Calgary-based Agrium operates the largest global directto-farmer agricultural retail operation. PotashCorp, which has its headquarters in Saskatoon, was formed by the Saskatchewan government in 1975 as a Crown corporation and was privatized in 1989. Agrium got its roots in 1931, when the Consolidated Mining and Smelting Company (later known as Teck) founded its fertilizer division. The name of the company was changed to Agrium in 1995.

Hansen says the new company will be able, among other things, to fend off any takeover attempts, like the failed attempt by BHP Billiton to take over PotashCorp in 2010. “You think about the context of creating a real Canadian champion on the global stage as opposed to some foreign entity coming in with less appreciation for the Canadian environment,” Hansen said.

Hansen believes the merger will have fewer benefits for Agrium than for its new partner. “From PotashCorp’s standpoint, it does make a bit of sense in so far as they are looking for downstream distribution for their product, or looking for a home for their product in a market that is heavy on supply and that would make a lot of sense,” he said.

Not so for the Agrium side of the deal. “It really is perplexing in that it is counterintuitive or incongruent with their strategy around bolstering their retail business and focusing their efforts on retail. The idea of going upstream to wholesale is perplexing,” he said.

Hansen believes that the deal is more likely to be approved by government than the BHP effort, which was blocked by Ottawa because it didn’t adequately benefit Canada. “The BHP strategy was very blunt. They came in and said they were going to take over. They made very few assurances to the local government,” he said. Saskatchewan Premier Brad Wall has been quoted as saying he believes a potential merger of PotashCorp and Agrium could benefit the province. The new company’s head office will be based in Saskatoon, with a corporate office in Calgary.

You think about the context of creating a real Canadian champion on the global stage as opposed to some foreign entity coming in with less appreciation for the Canadian environment.”