Potash, Agrium merge to grow fertilizer firm
Global agricultural giant worth estimated $36 billion will have 20,000 employees
“Combining the world’s largest fertilizer with the world’s largest (agricultural) retailer makes an awful lot of sense to me.” CHUCK MAGRO AGRIUM CEO
CALGARY— Potash Corp. of Saskatchewan and Agrium have agreed to merge in a deal that would create a global agricultural giant worth an estimated $36 billion (U.S.).
The deal brings together Saskatoon-based PotashCorp’s huge fertilizer mining operations — the world’s largest by capacity — with Calgarybased Agrium’s extensive global direct-to-farmer retail network.
“I wouldn’t be doing this deal if I didn’t think that this was the right time or the right deal,” Agrium CEO Chuck Magro told a conference call with financial analysts.
“I look at the strategic fit and I look at combining the world’s largest fertilizer with the world’s largest (agricultural) retailer. That makes an awful lot of sense to me.”
Under the agreement, PotashCorp shareholders will receive 0.4 of a share of the new company for each common share of PotashCorp they own, while Agrium shareholders will receive 2.23 shares for each Agrium share they own.
PotashCorp shareholders will own roughly 52 per cent of the new company, while Agrium shareholders will own 48 per cent on a fully diluted basis. Shares of PotashCorp rose 3.7 per cent to $17.60 before the stock market opened in Monday. Agrium shares were unchanged at $95.21.
The new company will have 20,000 employees, market value of $36 billion and annual revenue of $20.6 billion, with operations in 18 countries, the companies said. A name for the new company will be announced before the deal closes in the middle of next year.
The companies said they expected to generate up to $500 million in annual operating synergies with $250 million in the first year and the full amount by the end of the second.
“The integrated platform established through our combination will greatly benefit customers and suppliers, and support even greater career development opportunities for employees,” PotashCorp chief executive Jochen Tilk said in a statement.
Magro called it a transformational merger that will create benefits and growth opportunities that neither company could achieve alone.
Magro will be CEO of the new company and Tilk will be executive chairman.
“Combining our complementary assets will enable us to serve our customers more efficiently, deliver significant operating synergies and improve our cash flows to provide cap- ital returns and invest in growth,” he said.
News of the deal comes as the fertilizer industry struggles with a steep drop in prices in recent years following a ramp-up of production and the breakup of a Russia-Belarus potash trading cartel in 2013.
PotashCorp reported an averaged realized price in the second quarter of $154 per tonne compared with $273 per tonne a year ago.
Analysts expect the combined company would be better able to control fertilizer output and may lead to mine closures.
Potash companies have already made moves this year to cut costs and production, with PotashCorp shutting its recently opened Picadilly mine in New Brunswick in January and temporarily closing some Saskatchewan mines. U.S.-based Mosaic Co. has closed its potash mine near Colonsay, Sask., until market conditions improve.
The industry has looked for consolidation in the past with PotashCorp pushing for an $8.7-billion takeover of K+S Group last year that was rebuffed by the German fertilizer group. PotashCorp itself was the target of a $38.6-billion takeover bid by BHP Billiton in 2010, but the Canadian government ultimately blocked the offer as not having enough net benefit for Canada.
Analysts expect the deal to face less scrutiny than the BHP proposal because both companies are Canadian, but it will still have to go through regulatory and Competition Bureau approvals. The Saskatchewan government formed PotashCorp in 1975 as a Crown corporation before it was privatized in 1989. Agrium was founded in 1931 as part of Cominco and became a publicly traded company in 1993.