PotashCorp, Agrium in preliminary merger talks to create agricultural giant

The combined company would have more negotiating clout and supply discipline, something that is currently lacking in the agricultural industry, he said.

The merger talks come as the fertilizer industry struggles with a steep drop in prices in recent years following a ramp-up of production and the breakup of a Russia-Belarus potash trading cartel in 2013.

Sam La Bell, head of research at Veritas Investment Research Corp., said market conditions are likely a motivating factor behind the merger talks.

“This is a merger more to recognize the industry conditions rather than something that they both would have considered when potash prices were a lot higher,” said La Bell. “I’m not sure this would have gone ahead a couple of years ago.”

PotashCorp reported an averaged realized price in the second quarter of US$154 per tonne compared with US$273 per tonne a year ago, and well off the 2008 peak of around US$900 a tonne.

“Mergers nowadays are done for cost reasons, so clearly this is an industry that’s facing very low pricing and they’re trying to cut costs as much as possible everywhere that they operate,” said La Bell.

Potash companies have already made moves this year to cut costs and production, with PotashCorp shutting its recently opened Picadilly mine in New Brunswick in January and temporarily closing some Saskatchewan mines. U.S.-based Mosaic Co. has closed its potash mine near Colonsay, Sask., until market conditions improve.

News of the talks, first reported by Bloomberg, pushed PotashCorp’s (TSX:POT) stock up $2.40 or 11.5 per cent to close at $23.30 on the Toronto Stock Exchange, while Agrium’s (TSX:AGU) stock rose by $8.56 or 7.4 per cent to $125.09.

The rise in share prices left PotashCorp with a market capitalization of $19.56 billion and Agrium worth $17.28 billion.

Saskatchewan Premier Brad Wall said the CEOs of PotashCorp and Agrium had called to assure him that the province’s interests in terms of jobs, taxes and economic impact are part of negotiations.

“Both of them indicated to me, and it was good to hear this, that the interests of Saskatchewan have been at the forefront of even these preliminary discussions,” said Wall.

La Ball said PotashCorp and Agrium already work closely as members of Canpotex, which markets and exports Canadian potash production abroad. He said Agrium’s retail wing, which gives them direct exposure to farmers, could also give PotashCorp a boost.

“Agrium does operate in different segments that they have greater exposure to, outside of potash production. That brings a level of diversity to potash that might be beneficial,” said La Ball.

The industry has looked for consolidation in the past, with PotashCorp pushing for a US$8.7-billion takeover of K+S Group last year that was rebuffed by the German fertilizer group.

PotashCorp itself was the target of a US$38.6-billion takeover bid by BHP Billiton in 2010, but the Canadian government ultimately blocked the offer as not having enough net benefit for Canada.

Stephenson said he expects the potential merger between PotashCorp and Agrium will likely face less resistance since both companies are based in Canada.

“It’s a made-in-Canada solution,” said Stephenson.

The Saskatchewan government formed PotashCorp in 1975 as a Crown corporation. The company was privatized in 1989.

Agrium was founded in 1931 as part of Cominco and became a publicly traded company in 1993.

— With files from Jennifer Graham in Regina

Follow @ibickis on Twitter.

Ian Bickis, The Canadian Press

Note to readers: This is a corrected story. A previous version had an incorrect spelling of PotashCorp.

by Canadian Press

PotashCorp, Agrium in preliminary merger talks to create agricultural giant

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