Sask. must be protected if potash firms merge: Wall

  • 31 Aug 2016
  • Leader-Post
  • ALEX MACPHERSON
  • With files from Bloomberg and Postmedia News

Sask. must be protected if potash firms merge: Wall

PotashCorp, Agrium confirm early discussions underway on $30B deal

A potential $30-billion merger between Potash Corp. of Saskatchewan Inc. and Agrium Inc. would not trigger a formal Investment Canada review, but the province “absolutely” has a stake in the deal, according to Premier Brad Wall.

“We would want to see Saskatchewan’s interests protected and furthered, frankly, if there is to be a merger,” Wall told reporters Tuesday morning in Regina, about an hour after PotashCorp and Agrium issued simultaneous news releases confirming they are in preliminary discussions about a “potential merger of equals.”

“No decision has been made as to whether to proceed with such a combination, no agreement has been reached, and there can be no assurance that any transaction will result from these discussions,” the releases stated.

Wall said while the provincial government is interested in protecting Saskatchewan’s interests, any potential merger could present an opportunity to attract more corporate jobs.

“On the more positive side of things — and I’ve shared this with both CEOs — our government would even want to begin proactively working on some ideas that would make Saskatchewan an attractive place for even more jobs,” he said.

A spokesman for Saskatoonbased PotashCorp, which was established in 1975 as a Crown corporation before going public in 1989 and has a market capitalization of about $14.6 billion, declined to comment. Representatives of Agrium — which is headquartered in Calgary and valued at about $13.2 billion — did not immediately respond to a request for comment.

The potential deal comes as both companies struggle amid an oversupplied fertilizer market that has seen prices fall from a peak of about US$900 per tonne in 2008 to less than US$300 today. The province has forecast an annual average of US$205.

Collapsing prices have led potash producers to report lower earnings and take drastic steps to cut costs, including slashing production, laying off staff, abandoning projects and, in PotashCorp’s case, shuttering a new mine.

Both companies have lowered their annual profit forecasts. Earlier this month, Agrium cut the top end of its full-year estimate by US$0.95 per share, to US$5.30 per share.

In July, PotashCorp slashed its dividend and lowered the top end of its annual profit forecast to US$0.55 per share from the US$0.80 per share it projected following the first quarter of 2016.

Weak prices also led the provincial government to put the brakes on its planned review of the potash royalty regime, under which it collects fees for each tonne of fertilizer mined in Saskatchewan.

“We don’t think that any changes in the royalty structure would be a good idea given where we’re at in the marketplace,” former finance minister Bill Boyd told the Saskatoon StarPhoenix last month.

In a news release issued Tuesday afternoon, the provincial New Democratic Party slammed Wall’s economic record and said any deal between the companies would “damage the (potash) industry and cost Saskatchewan jobs.”

A merger between Agrium and PotashCorp is likely not about one company attempting to acquire assets, but about survival in an extremely weak market, according to Brooke Dobni, a professor of strategy at the Edwards School of Business.

While there are downsides, including the need to cut some jobs and choose a headquarters location, a combined company would benefit from greater diversification, better supply management and improved cost control, Dobni said.

“I think these organizations are looking at the reality that the price of the commodity is going to settle in at some point in time at US$300, US$350 per tonne,” he said.

“I think that’s really the best-case scenario for them. And (they’re asking), ‘How do we set up an organization to be competitive at those prices over the next 10 years or 15 years?’ ”

PotashCorp has twice been involved in proposed, though never completed, takeover bids.

In 2010, the federal government blocked a concerted attempt by the Melbourne, Australia-based mining giant BHP Billiton to take over the company for the equivalent of $39 billion.

Late last year, PotashCorp withdrew an $11.5 billion offer to take over K+S AG — which is building a $4.1 billion solution mine near Bethune — after the German company rejected several different offers.

If both companies choose to proceed, the merger will be subject to review by the Competition Bureau, which, according to its website, considers factors such as “economic concentration in the relevant industry and the merging parties’ market shares.”

Because both firms are Canadian-owned, a merger would not be subject to review under the Canada Investment Act. That means the provincial government would be in a “tight spot” with little recourse if it didn’t like the terms of the deal, Dobni said.

“(If ) the government is seen to be meddling too much in the affairs of a publicly-traded company, that’s going to affect the investment environment in Saskatchewan, so companies will think twice about coming to Saskatchewan.”

 

About prosperitysaskatchewan

Consultant on Saskatchewan's natural resources.

Posted on August 31, 2016, in economic impact, political, potash. Bookmark the permalink. Leave a comment.

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