Potash Corp. of Saskatchewan and Agrium have agreed to merge in a deal that would create a global agricultural giant worth an estimated US$36 billion.
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The combined company will have almost 20,000 employees and an enterprise value, including debt, of about $36 billion.
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 tie-up, which the companies called “a merger of equals”, was unanimously approved by their respective boards, but still needs the green light from shareholders and regulators.
The combined company would have had 2015 net revenue of about US$20.6 billion and earnings before interest, taxes, depreciation, and amortization (EBITDA) of US$4.7 billion before synergies, on a proforma basis, the companies said.
Putting together Agrium and Potash Corp. will create a vertically integrated company that not only produces commodity fertilizer but also sells it directly to farmers through a North American network of retail stores. The new company will be based in Saskatoon, Potash’s current headquarters.
The companies first announced they were in preliminary discussions late last month.
As part of the deal, Potash shareholders will receive 0.4 of a share of the new company for every Potash stock they own.
Analysts expect the combined company would be better able to control fertilizer output and may lead to mine closures.
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The companies estimate that the deal will generate up to $500 million in annual operating synergies from distribution and retail integration, production and general expense optimization and procurement benefits. The synergies imply value creation for the combined enterprise of up to US$5 billion, or a 20 percent increase above the combined market capitalizations on August 29, 2016. The transaction is expected to be accretive for both sets of shareholders with run-rate synergies. Following the closing of the transaction, the new company will target a stable and growing dividend that reflects the strengthened cash flow profile of the combined company.
