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Potash Corp, Agrium Provide Update on Merger of Equals Deal

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Potash Corporation of Saskatchewan Inc. (POT - Free Report) and Agrium Inc. (AGU - Free Report) have provided an update on the status of their proposed merger of equals deal.   

The approval process and regulatory review has progressed in all remaining jurisdictions and the companies are working with the Federal Trade Commission and the Canadian Competition Bureau in the United States and Canada respectively, to resolve final issues in nitric acid and superphosphoric acid (SPA).

The Ministry of Commerce in China and the Competition Commission of India have informed the companies regarding their intention to provide respective approvals, provided Potash Corp divests its minority ownership interests in certain offshore entities.

Both companies remain highly confident of completing the deal and believe that the current remedies under consideration will not create any impact on the expected annual operating synergies worth $500 million, which will be created from this merger. However, the companies now expect the transaction to close by the end of fourth-quarter 2017, which was previously expected to be completed in the third quarter.

On Jun 21, Potash Corp. and Agrium announced that once their proposed merger transaction completes, the combined entity will be called “Nutrien”.  It will play a critical role in "Feeding the Future" initiative, by acting as the largest global provider of crop services and inputs and help growers to increase sustainable food production.

About the Deal

In September 2016, both companies agreed to merge their businesses to create a fertilizer powerhouse with a pro-forma enterprise value of $36 billion. The merger will create the world’s largest crop nutrient supplier and the integrated company will be better positioned to counter headwinds in the crop nutrient markets.

The combined company will also be able to serve customers and growers better with low-cost, high-value products and services and complementary assets. It will also have the lowest-cost potash production assets and reserves in North America, a balanced portfolio of nutrients and a leading retail distribution platform.

Moreover, the new company will 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.

Price Performance

Shares of Potash Corp. have moved up 8.9% in the last three months, underperforming the industry’s 11.1% growth.

 

Q2 Performance & Outlook

Potash Corp. witnessed a year-over-year increase in net earnings and sales in second-quarter 2017. The company’s adjusted earnings came in at 16 cents per share which narrowly missed the Zacks Consensus Estimate of 17 cents.

Potash Corp., in second-quarter 2017 earnings call, announced that it expects full-year 2017 earnings in the range of 45-65 cents per share that includes merger related charges of 6 cents. The company has revised total potash sales volume guidance and now expects sales in the range of 9-9.4 million tons (up from 8.9-9.4 million tons) in 2017. It projects potash gross margin of $650-$850 million for the year and combined gross margin for nitrogen and phosphate in the band of $150-$300 million for 2017.

Healthy Demand to Lend Support Amid Weak Pricing Environment

The company witnessed a healthy demand for potash in the second quarter and expects consistent customer engagement through the remainder of 2017, supported by healthy consumption trends. The company expects strong consumption in China in the second half of 2017 driven by higher crop acreage and nutrient affordability.

However, Potash Corp. remains exposed to a weak pricing environment. The company saw lower pricing across its nitrogen and phosphate businesses in the last quarter. Challenging market fundamentals and weak pricing continue to hurt profitability in the company’s phosphate business which is expected to persist for the rest of the year. Nitrogen pricing environment is also expected to remain challenging through the balance of 2017 as the global markets continue to adapt to considerable capacity increase.

Zacks Rank & Stocks to Consider

Potash Corp. currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials space are The Chemours Company (CC - Free Report) and Kronos Worldwide Inc (KRO - Free Report) . Both stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Chemours has an expected long-term earnings growth rate of 15.5%.

Kronos Worldwide has an expected long-term earnings growth rate of 5%.

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