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September 13, 2016

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Agrium, Potash create new fertilizer giant

CANADA’S Agrium Inc and Potash Corp of Saskatchewan Inc agreed to combine in a deal that would create a fertilizer giant with an enterprise value of about US$36 billion but also draw scrutiny from US regulators.

Potash Corp, the world’s biggest crop nutrient company by capacity and Agrium, North America’s largest farm retailer, said the combined entity would be largest crop nutrient company in the world.

Potash and Agrium said last month they were in talks to merge. The merger will create a company dominant in North America, controlling nearly two-thirds of potash capacity, 30 percent of phosphate production capability and 29 percent of nitrogen capacity, National Bank analyst Greg Colman said at the time.

The deal would be the latest in a string of agriculture merger attempts, including potential combinations of seed giants Monsanto Co and Bayer AG, and ChemChina and Syngenta.

Fertilizer companies have suffered lower profits as crop nutrient prices have tumbled due to excessive supply and weak demand.

Crop prices have also been hurt, with corn and wheat at seven-year and 10-year lows respectively, giving farmers less incentive to maximize production with fertilizer.

Potash Corp shareholders will get 0.400 common share of the combined company for each share they hold and Agrium shareholders will get 2.230 common shares for each share they own, the companies said yesterday.

Potash Corp’s US-listed shares were up 2.2 percent at US$17.35 in light premarket trading. Agrium’s US-listed shares, which closed at US$95.21 last Friday, were untraded

Potash Corp shareholders will own about 52 percent of the new company, with Agrium shareholders owning the rest after the deal closes, which is in mid-2017.

The combined company would have had 2015 net revenue of about US$20.6 billion and earnings before interest, taxes, depreciation and amortization of US$4.7 billion before synergies, on a proforma basis, according to the companies.

The companies expect annual operating synergies of up to US$500 million from the merger, primarily from distribution and retail integration, production and SG&A optimization, and procurement

Agrium Chief Executive Chuck Magro will lead the combined company. Potash Corp CEO Jochen Tilk will be its executive chairman

“Other than the trotting out the usual banalities of ‘pre-eminent low-cost producer,’ there is little to substantiate how US$500 million in synergies will be achieved,” said independent analyst and investor Chris Damas, noting that Russian rival Uralkali has a lower cost of potash production than even that of Potash Corp’s largest mine.

“This is more Agrium buying Potash Corp than vice versa,” he added in a note, pointing out that Magro — a protege of Agrium’s long-time former CEO Mike Wilson — will be calling the shots at the combined entity.

Following the close of the transaction, the new company will be headquartered in Saskatoon, with Canadian corporate offices in both Calgary and Saskatoon.

Barclays Capital Inc and CIBC Capital Markets are Agrium’s financial advisers, while BofA Merrill Lynch and RBC Capital Markets are Potash Corp’s financial advisers.

Morgan Stanley & Co LLC is serving as joint financial adviser to Agrium and Potash Corp.


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