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Sep 12, 2016

Dealbook: Agrium and Potash Corp. to Merge, Creating Fertilizer Giant - September 12, 2016

Leslie Picker and Ian Austen
Potash more than 3,000 feet below the earth’s surface at a Potash Corporation mine in 2010. David Stobbe/Reuters
Two large Canadian fertilizer giants have agreed to merge.

Agrium and the Potash Corporation of Saskatchewan signed an all-stock merger, creating the largest crop-nutrient company in the world, the companies announced on Monday. After the close of the deal, Potash Corp. shareholders will own 52 percent of the new company, while Agrium’s investors will own 48 percent.
The two companies produce nitrogen, potash and phosphate fertilizers, which farmers use to grow their crops.
The deal follows others that touch the farming industry, including the merger between Dow Chemical and DuPont, with plans to eventually break into three parts, one of which to focus on agricultural chemicals. China National Chemical Corporation, or ChemChina, has also agreed to acquire seed and farm chemicals producer Syngenta. And the German industrial giant Bayer has been in back-and-forth negotiations with Monsanto, the American company known for its genetically modified crop seeds.
Some farm groups have raised concerns about the effect of an merger of Agrium and Potash Corp. on fertilizer prices. Yet there has been little public outcry since the two companies said on Aug. 30 that they were in talks.
The deal will require regulatory and competition reviews. In Canada, the Liberal government of Prime Minister Justin Trudeau has not raised any concerns about the merger, at least publicly.
Mr. Trudeau’s office did not immediately respond to a request for comment on Monday morning.
Six years ago, when demand from China was pushing up the price of potash, the Australian mining giant BHP Billiton tried to acquire Potash Corp. The takeover bid immediately prompted a political backlash among critics, including some traditional advocates of open investment policies.
Following a request by the province of Saskatchewan, which founded Potash Corp. in 1975 and sold it to the private sector it in 1989, the Conservative federal government of the time effectively killed the deal using foreign investment review laws.
China’s Sinochem also prepared to make a bid but withdrew it, apparently because of Canadian government opposition.
Reflecting the decline in fortune of the potash industry, the $36 billion value of the merged companies is well below the $39 billion BHP proposed to pay for Potash Corp. alone.
Potash Corp. said the average price for its commodity during the second quarter of this year was $154 a metric tonne. At the height of the battle with BHP, prices reached as high as $900.
Potash Corp. has mothballed a recently opened mine in the eastern Canadian province of New Brunswick and temporarily closed some operations in Saskatchewan, the center of the industry in Canada. Mosaic, another Potash Corp. producer based in Plymouth, Minn., has also closed a mine in Saskatchewan, citing low prices.
The name of the combined Agrium and Potash, which will have about 20,000 employees, will be determined before the deal closes. The companies expect the merger will generate as much as $500 million in savings from combining their distribution and retail operations, production and back-office capabilities. They are expecting half of those so-called synergies to be achieved at the end of the first year after closing.
“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 Monday’s statement.
Mr. Magro will become the chief executive of the combined company, while Jochen Tilk, the president and chief executive of Potash, will become the executive chairman after the merger. The new company’s board will have an equal amount of directors from each company.
Potash had a $14.3 billion market valuation as of Friday’s close, while Agrium’s was $13.2 billion. Under the terms of the deal, Potash shareholders will receive 0.400 common shares of the new company for each of their shares, while Agrium shareholders will receive 2.230 common shares of the new company.
After the close of the deal, the company will seek a dividend similar to Agrium’s, adjusted for the new amount of shares. The dividend would be subject to market conditions and board approval. It will count Saskatoon, Saskatchewan, where Potash is based, as the legally registered head office with corporate offices in Calgary as well. Prices of fertilizer have come under pressure recently, as demand has softened.
The deal, which has been approved by the boards of both companies, is expected to close during the middle of next year, dependent on approvals by regulators, Canadian court and shareholders.
Agrium’s financial advisers in the deal included Barclays and CIBC Capital Markets, while Bank of America Merrill Lynch and RBC Capital Markets advised Potash Corp. Agrium’s legal advisers were Blake, Cassels & Graydon; Norton Rose Fulbright Canada; Paul, Weiss, Rifkind, Wharton & Garrison; and Latham & Watkins. Stikeman Elliott and Jones Day provided legal counsel to Potash Corp. Morgan Stanley advised both Agrium and Potash Corp.