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Potash Corp, Agrium in $36 Billion Fertilizer Mega-Merger
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Canadian fertilizer makers Potash Corp. and Agrium made it official yesterday that they have agreed to combine their businesses in a “merger of equals” to create a fertilizer powerhouse with a pro-forma enterprise value of $36 billion. The companies said in late August that they were in talks to merge.
The two leading fertilizer companies – both reeling under the effects of the depressed prices of crop nutrients – have agreed to merge in an all-stock deal that has been unanimously cleared by the boards of both companies. The companies said that a new parent company will be formed to own both companies.
The Deal
Under the deal terms, shareholders of Potash Corp. – the world’s largest fertilizer maker by capacity – will get 0.400 common shares of the integrated company for each share they own. Shareholders of Agrium, the biggest farm retailer in North America, will get 2.230 common shares of the combined entity for each Agrium common share they own. The all-stock nature of the deal allows all shareholders to participate in the benefits of the merger.
Following the closure of the transaction, shareholders of Potash Corp. will own roughly 52% of the combined company, with Agrium shareholders holding the balance on a fully diluted basis.
The transaction, which is subject to regulatory clearances, Canadian court approval, approval by the shareholders of both companies and other closing conditions, is expected to consummate during mid-2017. It will also be implemented by way of a plan of arrangement under the Canada Business Corporations Act. Both companies expect to retain their current dividend payments until the transaction closure.
BofA Merrill Lynch and RBC Capital Markets are serving as financial advisors to Potash Corp. while Barclays Capital Inc. and CIBC Capital Markets are Agrium’s financial advisors for the deal. Morgan Stanley & Co. LLC is serving as joint financial advisor to both companies.
Following the deal closure, Potash Corp. CEO Jochen Tilk will serve as Executive Chairman of the new company while Agrium CEO Chuck Magro will serve as Chief Executive Officer. Both will report to the new board of directors. The combined company’s board will also have equal representation. The new company will have its registered head office in Saskatoon with Canadian corporate offices in both Calgary and Saskatoon.
Industry Majors Unite in Tough Times
The deal came as a survival strategy as both Potash Corp. and Agrium are feeling the bite of low fertilizer prices, weak agricultural market conditions and depressed demand in certain key markets including Brazil. These headwinds have weighed heavily on their sales and profits so far this year. Global capacity expansion continues to exert pressure on fertilizer prices.
Potash Corp. saw its profits tumble roughly 71% in the second quarter of 2016 as lower prices hurt margins across its potash, nitrogen and phosphate businesses. The company reduced its earnings guidance for 2016 and announced a dividend cut. Moreover, weaker selling prices across all nutrients dragged down Agrium’s profits in the second quarter. The company cut its earnings guidance for 2016 factoring in sustained pricing pressure.
The broader fertilizer industry remains hamstrung by a slew of headwinds including low prices of nutrients and depressed farm income. The prevailing softness in agricultural commodity pricing remains a concern for fertilizer companies as it is hindering fertilizer use by farmers given the adverse effect of lower crop pricing on growers’ income.
Prices for potash (a major nutrient), which are down roughly 27% from a year ago, continue to be hurt by elevated supply. Potash prices came under pressure following the exit of the world's largest potash maker, Uralkali Group from one of the biggest potash cartels – the Belarus Potash Company (“BPC”) – in 2013. Depressed global energy prices and higher supply have also contributed to a softer nitrogen-pricing environment.
A Fertilizer Giant in the Making
The integrated company (to be named prior to the transaction closure) will be the largest crop nutrient company in the world and the third largest natural resource company in Canada. It will also be better placed to serve customers and growers with low-cost, high-value products and services and complementary assets.
The combined company will have the lowest-cost potash production assets and reserves in North America, a balanced portfolio of nutrients and a leading retail distribution platform. Moreover, recently completed investments in low-cost capacity are expected to improve operating costs and help the new company address increases in demand.
The combined entity would have nearly 20,000 employees, operations and investments across 18 countries. Moreover, it would have net revenues of around $20.6 billion and EBITDA of $4.7 billion for 2015 before synergies on a pro-forma basis.
The integrated company is also expected to generate as much as $500 million of annual operating synergies. Roughly $250 million of these synergies are expected to be achieved by the end of the first year following the completion of the transaction. The deal is anticipated to be accretive for both sets of shareholders with run-rate synergies.
The new company will also have a strong balance sheet with considerable cash flows, providing it ample flexibility to return excess capital to shareholders and invest in growth while retaining a strong investment grade credit rating profile. The integrated entity would have 2015 operating cash flow of more than $4 billion (inclusive of expected synergies) on a pro-forma basis.
The deal, however, is likely to face antitrust scrutiny due to competitive concerns given its size and scale.
Potash Corp.'s shares slipped around 1.2% to close at $16.76 yesterday while Agrium ended 2.7% lower at $92.64.
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Potash Corp, Agrium in $36 Billion Fertilizer Mega-Merger
Canadian fertilizer makers Potash Corp. and Agrium made it official yesterday that they have agreed to combine their businesses in a “merger of equals” to create a fertilizer powerhouse with a pro-forma enterprise value of $36 billion. The companies said in late August that they were in talks to merge.
The two leading fertilizer companies – both reeling under the effects of the depressed prices of crop nutrients – have agreed to merge in an all-stock deal that has been unanimously cleared by the boards of both companies. The companies said that a new parent company will be formed to own both companies.
The Deal
Under the deal terms, shareholders of Potash Corp. – the world’s largest fertilizer maker by capacity – will get 0.400 common shares of the integrated company for each share they own. Shareholders of Agrium, the biggest farm retailer in North America, will get 2.230 common shares of the combined entity for each Agrium common share they own. The all-stock nature of the deal allows all shareholders to participate in the benefits of the merger.
Following the closure of the transaction, shareholders of Potash Corp. will own roughly 52% of the combined company, with Agrium shareholders holding the balance on a fully diluted basis.
The transaction, which is subject to regulatory clearances, Canadian court approval, approval by the shareholders of both companies and other closing conditions, is expected to consummate during mid-2017. It will also be implemented by way of a plan of arrangement under the Canada Business Corporations Act. Both companies expect to retain their current dividend payments until the transaction closure.
BofA Merrill Lynch and RBC Capital Markets are serving as financial advisors to Potash Corp. while Barclays Capital Inc. and CIBC Capital Markets are Agrium’s financial advisors for the deal. Morgan Stanley & Co. LLC is serving as joint financial advisor to both companies.
Following the deal closure, Potash Corp. CEO Jochen Tilk will serve as Executive Chairman of the new company while Agrium CEO Chuck Magro will serve as Chief Executive Officer. Both will report to the new board of directors. The combined company’s board will also have equal representation. The new company will have its registered head office in Saskatoon with Canadian corporate offices in both Calgary and Saskatoon.
Industry Majors Unite in Tough Times
The deal came as a survival strategy as both Potash Corp. and Agrium are feeling the bite of low fertilizer prices, weak agricultural market conditions and depressed demand in certain key markets including Brazil. These headwinds have weighed heavily on their sales and profits so far this year. Global capacity expansion continues to exert pressure on fertilizer prices.
Potash Corp. saw its profits tumble roughly 71% in the second quarter of 2016 as lower prices hurt margins across its potash, nitrogen and phosphate businesses. The company reduced its earnings guidance for 2016 and announced a dividend cut. Moreover, weaker selling prices across all nutrients dragged down Agrium’s profits in the second quarter. The company cut its earnings guidance for 2016 factoring in sustained pricing pressure.
The broader fertilizer industry remains hamstrung by a slew of headwinds including low prices of nutrients and depressed farm income. The prevailing softness in agricultural commodity pricing remains a concern for fertilizer companies as it is hindering fertilizer use by farmers given the adverse effect of lower crop pricing on growers’ income.
Prices for potash (a major nutrient), which are down roughly 27% from a year ago, continue to be hurt by elevated supply. Potash prices came under pressure following the exit of the world's largest potash maker, Uralkali Group from one of the biggest potash cartels – the Belarus Potash Company (“BPC”) – in 2013. Depressed global energy prices and higher supply have also contributed to a softer nitrogen-pricing environment.
A Fertilizer Giant in the Making
The integrated company (to be named prior to the transaction closure) will be the largest crop nutrient company in the world and the third largest natural resource company in Canada. It will also be better placed to serve customers and growers with low-cost, high-value products and services and complementary assets.
The combined company will have the lowest-cost potash production assets and reserves in North America, a balanced portfolio of nutrients and a leading retail distribution platform. Moreover, recently completed investments in low-cost capacity are expected to improve operating costs and help the new company address increases in demand.
The combined entity would have nearly 20,000 employees, operations and investments across 18 countries. Moreover, it would have net revenues of around $20.6 billion and EBITDA of $4.7 billion for 2015 before synergies on a pro-forma basis.
The integrated company is also expected to generate as much as $500 million of annual operating synergies. Roughly $250 million of these synergies are expected to be achieved by the end of the first year following the completion of the transaction. The deal is anticipated to be accretive for both sets of shareholders with run-rate synergies.
The new company will also have a strong balance sheet with considerable cash flows, providing it ample flexibility to return excess capital to shareholders and invest in growth while retaining a strong investment grade credit rating profile. The integrated entity would have 2015 operating cash flow of more than $4 billion (inclusive of expected synergies) on a pro-forma basis.
The deal, however, is likely to face antitrust scrutiny due to competitive concerns given its size and scale.
Potash Corp.'s shares slipped around 1.2% to close at $16.76 yesterday while Agrium ended 2.7% lower at $92.64.
POTASH SASK Price
POTASH SASK Price | POTASH SASK Quote
AGRIUM INC Price
AGRIUM INC Price | AGRIUM INC Quote
Potash Corp. currently carries a Zacks Rank #5 (Strong Sell) while Agrium is a Zacks Rank #3 (Hold) stock.
A couple of better-ranked companies in the basic materials space are Innospec Inc. (IOSP - Free Report) and Innophos Holdings Inc , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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