Canada’s Agrium Inc (AGU.TO) and Potash Corp (POT.TO) 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.
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The deal will give Potash Corp. shareholders 52 per cent of the new Saskatoon-based company, which has yet to be named.
The Potash-Agrium tie-up is expected to face scrutiny from antitrust regulators in the US and Canada, among others, over the combined companies’ North American share of global potash production capacity, analysts say.
The new company will be based in Saskatoon, Saskatchewan, now Potash Corp.’s headquarters, and Potash Corp. chief Jochen Tilk will be executive chairman while Agrium CEO Chuck Magro will become chief executive officer.
Both the companies claimed that the newly-emerged company will include world-class, low-priced potash, along with phosphate and nitrogen assets with an extensive retail network.
Agrium CEO Chuck Magro will serve as CEO of the new company while Potash CEO Jochen Tilk will act as executive chairman.
Potash Corp’s USA -listed shares fell 1.1 percent to $16.78, while Agrium shed 2.5 percent to $92.80. The exchange ratios represent the exchange ratios of the two companies at market close on the NYSE on August 29, 2016, the last trading day prior to when the companies announced that they were in preliminary discussions regarding a merger of equals, which is consistent with the approximate 10 day and 60 day volume weighted average prices through that date. He held positions at Canada’s Nova Chemicals Corp. before joining Agrium in 2009, where he held positions including chief operating officer, executive vice president of corporate development, and vice president of manufacturing.
Joining forces with Agrium offers Saskatchewan-based Potash protection against volatile fertilizer prices, through Agrium’s steadier retail network.
Magro says about $50 per tonne of the company’s costs are lost in logistics, which was a major incentive for the merger.
The new firm will have 20,000 employees, a market value of $36 billion and yearly income of $20.6 billion, the companies stated.
When just three companies dominate an industry, a merger of two of them is generally considered risky, said a US antitrust expert who requested anonymity to protect business relationships.
The companies said in a statement that they anticipate generating annual operating synergies of approximately $500 million following the merger. Moreover, having noteworthy synergies at operational level, improved cash flows are likely to increase the capital returns.
Potash and Agrium have studied the efficiencies arising from a merger for months and there will be “massive integration opportunities” between the former’s production assets and the latter’s retail operations, Magro said on a conference call with analysts. Both companies expect to retain their current dividend payments until the transaction closure. Morgan Stanley is a joint financial adviser to both companies. The Companys phosphate operations include the manufacture and sale of solid and liquid phosphate fertilizers, phosphate feed and industrial acid, which is used in food products and industrial processes.
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BofA Merrill Lynch and RBC Capital Markets are serving as financial advisors, and Stikeman Elliott LLP and Jones Day are serving as legal advisors to PotashCorp.
