Potash Corp. and Agrium merge, create $36bn fertilizer giant

Potash Corp. and Agrium merge, create $36bn fertilizer giant

One of the storage facilities at Potash Corp.'s Rocanville mine, one of Saskatchewan’s lowest-cost potash mines. (Image courtesy of Potash Corp.)

Canada’s Potash Corp. of Saskatchewan (TSX:POT) (NYSE: POT), the world’s largest producer of the fertilizer by capacity, and smaller rival Agrium (TSX:AGU) (NYSE: AGU) have agreed to an all-share merger, creating this way the world’s largest crop-nutrient supplier worth about $36 billion, including debt.

The move, the biggest Canadian merger since CNOOC Ltd. bought Nexen Energy ULC in 2013, will give Potash Corp. shareholders 52% of the new company, which has yet to be named, while Agrium investors will hold the rest, both firms said in joint statement.

Agrium chief executive officer, Chuck Magro, will assume as the boss of the combined group. Potash Corp. leader, Jochen Tilk, will in turn become executive chairman. The new company will be based in Saskatoon, Saskatchewan, the current location of Potash Corp.’s headquarters. Agrium is based in Calgary.

The combined firm will have nearly 20,000 employees and it is expected to generate up to $500 million of annual operating synergies, according to a new website created by Potash Corp and Agrium, which first revealed they were in preliminary discussions less than two weeks ago.

Potash Corp. and Agrium merge, create $36bn fertilizer giant

Source: Potash Corp., Agrium presentation. Sep. 12, 2016.

Last year, PotashCorp’s $8.8bn offer to buy German producer K+S, was rebuffed as the two failed to reach an agreement on price. The failed deal would have allowed PotashCorp to fuse with another of the top-five producers, giving the Canadian group control of about one-quarter of global supply.

“This is a transformational merger that creates benefits and growth opportunities that neither company could achieve alone,” Charles V. Magro, Agrium’s president and chief executive, said in the statement.

The deal, the latest in a string of recent agriculture merger attempts, is expected to close in mid-2017 and is subject customary closing conditions, including approvals by regulators, Canadian courts and shareholders.

But because both companies are Canadian, a merger is not likely to spark a federal government probe that ended up preventing world’s largest miner BHP Billiton’s 2010 attempt to take over PotashCorp, for $39 billion.

Sector struggles

A global oversupply of the fertilizer has caused prices to tumble in the past year, leading to layoffs and mine closures across the sector.

Prices for the fertilizer ingredient began their decline four years ago, as weak crop prices and currencies weakness pinched demand. Potash has also suffered from increased competition following the breakup in 2013 of a Russian-Belarusian marketing cartel that previously helped limit supply.

Potash Corp. and Agrium merge, create $36bn fertilizer giant

“Nearly everything has gone wrong for the potash industry” since 2011, analysts at Morgan Stanley wrote this year.

Potash's collapse picked up speed in the past year, putting additional pressure on producers, whose profits have been hit by falling prices, largely due to weak currencies in countries such as Brazil and low grain prices.

Crop prices have also been hurt, with corn and wheat at seven-year and 10-year lows respectively, which have reduced farmers’ willingness to maximize production with fertilizers.

Last month, BHP Billiton (ASX, NYSE:BHP) (LON:BLT), revealed it may place its Canadian Jansen potash project in the back burner if prices for the fertilizer ingredient don’t pick up by the end of the decade.

Shares in Potash Corp were up 2.8% to US$17.5 in New York Monday morning, while Agrium’s stock was up 1.21% to US$96.4