Already the world’s largest fertiliser producer by capacity, Potash Corporation of Saskatchewan Inc (NYSE:POT) stands to become the world’s largest crop nutrient business worth $27bn if a merger with Agrium Inc (NYSE:AGU) goes ahead.
The two Canadian companies hope to combine in what they call a “merger of equals” - Potash shareholders would own about 52% of the new company and Agrium shareholders would own about 48% - but it also provides the two companies with certain guarantees, for both enterprises, principally the reduction of costs.
The companies estimated the deal would generate up to $500mln in annual operating synergies.
Joining forces with Agrium offers Saskatchewan-based Potash protection against volatile fertilizer prices, through Agrium’s steadier retail network. That system also would lower Potash’s distribution costs, while expanding fertilizer sales.
Potash prices have been under pressure since 2013, when Russian producer Uralkali JSC pulled out of its sales partnership with Belarusian Potash Co. Slowing demand from emerging markets amid a flood of supply has prompted merger discussions in the fertilizer sector.
The merger between Potash and Agrium would be the latest in a series of global farming-sector deals. Those include the pending merger of Dow Chemical Co. (NYSE:DOW.WD) and DuPont (NYSE:DD), and China National Chemical Corp.’s planned takeover of Swiss pesticide and seed company Syngenta AG.
But US lawmakers said last month that they plan to hold a hearing to examine this wave of mergers, saying the deals potentially could reduce competition and lead to higher prices.
The Potash-Agrium tie-up is expected to face scrutiny from antitrust regulators in the US and Canada, among others, concerning the combined companies’ North American share of global potash production capacity, analysts say. The two together would control 23% of global production capacity, but 60% or more of North American capacity, ahead of Mosaic and Intrepid Potash, National Bank said in a note ahead of Monday’s announcement.
Potash shares closed down 1.2% at $16.76 on Monday while Agrium shares ended down 2.7% at $92.64.