September 12, 2016 — 4:11 AM MDT Updated on September 12, 2016 — 1:15 PM MDT
Potash Corp. of Saskatchewan Inc. and Agrium Inc., Canada’s largest fertilizer producers, agreed to an all-share merger to create the world’s largest crop-nutrient supplier with a market value of about $27 billion.
The deal will give Potash Corp. shareholders 52 percent of the new producer, which has yet to be named, while Agrium investors will hold the rest, the companies said Monday in a joint statement. Agrium Chief Executive Officer Chuck Magro will be CEO of the combined group while Potash Corp. leader Jochen Tilk will become executive chairman. The new company will have its registered head office in Saskatoon, Saskatchewan, the current location of Potash Corp.’s headquarters, while also keeping corporate offices in Calgary, where Agrium is based.
The transaction is the latest in a string of mega deals in the agricultural chemicals market announced in the past year as producers of fertilizers, pesticides and seeds struggle with low commodity prices and weak demand.
Negotiations between Bayer AG and Monsanto Co., the world’s largest seed company, are advancing after the German company’s $56 billion takeover bid. China National Chemical Corp. agreed in February to acquire Swiss pesticide maker Syngenta AG for about $43 billion, while DuPont Co. and Dow Chemical Co. plan to merge and then carve out a new crop-science unit.
Before entering discussions with Potash, Agrium itself held early stage deal talks with Plymouth, Minnesota-based Mosaic Co., according to people familiar with the matter, who asked not to be identified as the process wasn’t public. The talks fizzled out earlier this year and didn’t overlap with negotiations with Potash, they said.
Representatives for Agrium didn’t immediately respond to requests from comment. A representative for Mosaic declined to comment.
Increased merger activity is a sign of management confidence that the industry is bottoming out, UBS AG analysts led by John Roberts said Monday in a note.
Putting together Agrium and Potash Corp. will create a company that not only produces commodity fertilizers — potash as well as nitrogen- and phosphate-based nutrients — but also sells them directly to farmers through a North American network of retail stores. Potash Corp. is largely a mining company, extracting potash in underground mines, while Agrium got 77 percent of its revenue last year from its retail arm.
In Monday’s deal, described by both sides as a merger of equals, Potash Corp. investors will get 0.4 of a share in the new company for each share they own now while Agrium shareholders will get 2.23 shares. Potash Corp. fell 1.9 percent to $16.64 at 12:45 p.m. in New York while Agrium fell 3.4 percent at $91.98
While the merger does little to change the structure of the potash market, it offers a further chance to cut costs, something of a priority as farmers reduce usage while rival expansions come on line, Bloomberg Intelligence analyst Jason Miner said in a report.
Potash Corp. and Agrium expect to generate cost savings of $500 million a year following the completion of the deal. They also said they’re committed to marketing group Canpotex Ltd., their joint venture with U.S. fertilizer company Mosaic Co. that handles all three companies’ potash exports outside of North America.
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Potash Corp. 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. Agrium’s retail unit buys 10 million tons of fertilizer annually but right now less than 200,000 tons of that is purchased from Potash Corp., he said.
"I look at the strategic fit and I look at combining the world’s largest fertilizer producer with the world’s largest ag-retailer," Magro said. "That makes an awful lot of sense to me."
The deal will be implemented by a plan of arrangement under the Canada Business Corporations Act and is expected to close in mid-2017. The merged company will employ about 20,000 people and have investments in 18 countries.
Potash Corp.’s financial advisers on the deal are Bank of America Merrill Lynch and RBC Capital Markets while Stikeman Elliott LLP and Jones Day are its legal advisers. Agrium’s financial advisers are Barclays Capital Inc. and CIBC Capital Markets while its legal advisers are Blake, Cassels & Graydon LLP, Norton Rose Fulbright Canada LLP, Paul, Weiss, Rifkind, Wharton & Garrison LLP and Latham & Watkins LLP. Morgan Stanley is a joint financial adviser to both companies.