Slumping fertilizer majors Potash, Agrium to merge
Canada’s Agrium Inc. and Potash Corp. of Saskatchewan Inc. agreed to merge to create the world’s largest fertilizer company and navigate a severe industry slump, assuming the deal can first overcome close regulatory scrutiny.
Potash Corp. shareholders will own 52 percent of the new company, with Agrium shareholders owning the rest, if the deal closes in mid-2017 as the companies hope, they said on Monday.
Agrium chief executive officer Chuck Magro will be CEO of the merged company, whose market capitalization is projected at $26 billion. Potash CEO Jochen Tilk will become executive chairman.
Potash Corp. is already the world’s biggest crop-nutrient company by capacity, and Agrium is North America’s largest farm retailer.
The combined company would be dominant in North America, controlling nearly two-thirds of potash capacity, 30% of phosphate production capability and 29% of nitrogen capacity, according to National Bank Financial.
The tie-up comes as fertilizer companies’ profits have fallen due to excessive supply and weak demand. Corn prices have touched seven-year lows and wheat 10-year lows, giving farmers less incentive to maximize production with fertilizer.
“Having a larger, more diversified, integrated nutrients company will be the best solution,” Magro said on a conference call. “Windows open and windows close. This is the best opportunity with the best partner.”
Potash Corp.’s US-listed shares dipped 0.1% to $16.95, while Agrium shed 1.6% to $93.73, in early afternoon trading.
The deal would be the latest in a string of agriculture merger attempts, including potential combinations of seed and chemical companies Monsanto Co. with Bayer AG, and ChemChina with Syngenta AG.
Canadian and US regulators will scrutinize the deal over concerns about reduced competition and potentially higher costs for farmers. Tilk said he was confident the transaction would be approved as proposed, without the need to divest assets.
Roger Johnson, president of the National Farmers Union, has said his group would ask US antitrust enforcers to stop the proposed merger.
The deal may also have implications for Canpotex Ltd., which the two companies own with Mosaic Co. Tilk and Magro said they were committed keep selling potash to offshore markets through Canpotex.
The deal calls for the exchange of 0.400 common share of the combined company for each Potash share and 2.230 common shares for each Agrium share.
Both companies are subject to paying a $485 million termination fee.
The companies expect the deal to bring annual cost savings of up to $500m. from areas including distribution and retail integration, production and procurement but not from shutting any potash mines.
“There is little to substantiate how $500 million in synergies will be achieved,” analyst and investor Chris Damas said.
Russian rival Uralkali produces potash more cheaply than even Potash Corp.’s largest mine, he said.
After the transaction closes, the new company will be based in Saskatoon, Saskatchewan, with Canadian corporate offices both there and in Calgary, Alberta. (Reuters)