Fer­til­izer merger may face reg­u­la­tor scru­tiny

China Daily (Canada) - - FRONT PAGE - By AGEN­CIES

Cana­dian fer­til­izer pro­duc­ers Po­tash Corp of Saskatchewan Inc and Agrium Inc agreed to com­bine to nav­i­gate a se­vere in­dus­try slump by boost­ing ef­fi­ciency and cut­ting costs, but the new com­pany’s po­ten­tial pric­ing power may at­tract tough reg­u­la­tory scru­tiny.

The pro­posed all-stock tie-up an­nounced on Mon­day comes as in­dus­try prof­its have fallen due to ex­ces­sive sup­ply and soft farm in­comes. It would com­bine Po­tash’s crop nu­tri­ent pro­duc­tion ca­pac­ity, the world’s largest, with Agrium’s farm re­tail net­work, North Amer­ica’s big­gest, plus its own po­tash mine and fer­til­izer plants.

Po­tash share­hold­ers will own 52 per­cent of the new com­pany, with a mar­ket cap­i­tal­iza­tion of $26 bil­lion. Agrium share­hold­ers will own the rest if the deal closes in mid-2017 as planned.

Agrium Chief Ex­ec­u­tive Of­fi­cer Chuck Ma­gro will be CEO of the merged com­pany. Po­tash Chief Ex­ec­u­tive Jochen Tilk, who will be­come ex­ec­u­tive chair­man, said the struc­ture would cre­ate an “equal part­ner­ship”.

“Chuck and I will run this com­pany to­gether,” he said in an in­ter­view.

Tilk said he was con­fi­dent the trans­ac­tion would re­ceive reg­u­la­tors’ ap­proval as pro­posed, with­out the need for di­vesti­tures.

But oth­ers were skep­ti­cal that reg­u­la­tors would ap­prove a com­pany that would con­trol nearly two-thirds of North Amer­i­can po­tash ca­pac­ity and al­most onethird of phos­phate and ni­tro­gen ca­pac­ity there.

Fer­til­izer makes up as much as one-third of costs for U.S. corn farm­ers, who are al­ready hurt­ing due to fall­ing grain prices.

“This deal has some real an­titrust con­cerns,” said Seth Bloom, a US Jus­tice Depart­ment vet­eran who is now at Bloom Strate­gic Con­sult­ing. An an­titrust re­view is un­likely be­fore Jan­uary, when a new US pres­i­dent takes of­fice, he added.

The merger would leave Mo­saic Co as North Amer­ica’s only other ma­jor po­tash pro­ducer.

When just three com­pa­nies dom­i­nate an in­dus­try, a merger of two of them is gen­er­ally con­sid­ered risky, said a US an­titrust ex­pert who re­quested anonymity to pro­tect busi­ness re­la­tion­ships.

Agrium’s Ma­gro said the com­pa­nies’ plan to wring up to $500 mil­lion in syn­er­gies out of the deal, such as by com­bin­ing Agrium’s western North Amer­ica-based ni­tro­gen busi­ness with Po­tash Corp’s in the East, would make for a more ef­fi­cient in­dus­try.

“In com­modi­ties, lower costs will be good for ev­ery­one, in­clud­ing the farmer,” he said in an in­ter­view.

An­nual cost sav­ings would come from ar­eas in­clud­ing dis­tri­bu­tion and re­tail in­te­gra­tion, pro­duc­tion and pro­cure­ment but not from shut­ting any po­tash mines.

The deal would di­lute the im­por­tance of Agrium’s re­tail sys­tem, which sells fer­til­izer, seeds and chem­i­cals to farm­ers, mak­ing it less strate­gi­cally sound in the long term, said Robert Spaf­ford, port­fo­lio man­ager at Cidel As­set Man­age­ment, which owns Agrium stock.

“One of the rea­sons most in­vestors own Agrium is the re­tail busi­ness,” said Spaf­ford. “(Re­tail) is a much more sta­ble busi­ness than the whole­sale busi­ness.”

The deal may have im­pli­ca­tions for Can­po­tex Ltd, which the two com­pa­nies own with Mo­saic. Tilk and Ma­gro said they were com­mit­ted to keep sell­ing po­tash to off­shore mar­kets through Can­po­tex.

Each of the three com­pa­nies has equal sway in Can­po­tex board votes. Tilk said Mo­saic would re­main an equal part­ner, al­though de­tails must still be worked out.

Af­ter the trans­ac­tion closes, the new com­pany will be based in Saska­toon, Saskatchewan, a key fac­tor in win­ning over prov­ince Pre­mier Brad Wall, whose in­flu­ence is seen as im­por­tant.

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