On Monday, Saskatchewan-based fertiliser producer Potash Corporation and agricultural products retail supplier Agrium confirmed their intention to merge into a single company. The deal, if approved by regulators, would create the largest agricultural nutrient company in the world with annual revenue in excess of $21 billion. Potash shareholders will hold 52 per cent of the newly merged company and Agrium shareholders will retain 48 per cent. Merger discussions between the two companies have reportedly been ongoing since last year, with both looking to reduce costs through a combination.

Weathering the storm

The deal would offer pronounced benefits for both companies. Potash, as the world’s largest fertiliser producer by capacity, would gain protection against volatile fertiliser prices through access to Agrium’s massive North America retail network, which in turn would also lower distribution costs while boosting fertiliser sales. For Agrium, on the other hand, the deal would secure a bountiful supply of potash and other fertiliser ingredients. ‘The beauty about the transaction though is the $500 million of annual operating synergies that are in our control,’ said Agrium president and chief executive Charles Magro. ‘We don’t need the market to improve to drive shareholder value.’

Antitrust concerns

It is likely that the proposed merger will be received sternly by competition regulators in Canada and the US. The volatile market for agricultural chemicals and nutrient products has driven rapid consolidation across the global industry, including the pending merger between Dow Chemical and DuPont and China National Chemical Corp’s planned takeover of Swiss pesticide and seed company Syngenta. A merged Potash-Agrium company would control around 23 per cent of global production capacity for potash, but more than 60 per cent of production capacity in North America. The companies are hoping to close the merger deal by mid-2017.

Sources: Wall Street Journal; New York Times