Potash deal faces few obstacles
- 13 Sep 2016
- Calgary Herald
- JESSE SNYDER
Deal faces few obstacles
Potash Corp. and Agrium positive on prospect of approval by regulators
Agrium Inc. and Potash Corp. of Saskatchewan are confident their mega merger announced Monday will eventually be approved, saying they are two very different yet tightly intertwined companies that would not breach antitrust laws because they occupy very different technological markets.
The two companies announced their intention to merge in a deal that would create the largest fertilizer company in the world with an enterprise value of $36 billion.
Upon completion of the deal, Potash Corp. would see its potash market share rise to an estimated 62 per cent of the total capacity in North America, according to research notes from Greg Colman at National Bank Financial. Its share of the nitrogen nutrients market would also increase to 30 per cent, raising speculation about whether the merger would trigger antitrust legislation.
The new company will have close to 20,000 employees operating in 18 countries.
“This deal is much different than the other deals that have been talked about in the marketplace,” Agrium CEO Chuck Magro said in an interview. “These are commodities and they’re pure commodities, and so there’s no consolidation of technology here.”
The combination of such big players in agriculture has farmers and politicians concerned about a lack of competition at the expense of producers.
“It’s just one less competitor out there,” said Norm Hall, president of the Agricultural Producers Association of Saskatchewan.
The merger was greeted with mixed reaction from analysts about how the combined company will manage to integrate its wholesale production with its retail division.
Calgary-based Agrium owns some potash mines, but generated 77 per cent of its revenues in 2015 from its retail business, which supplies seeds and fertilizer to farmers through its 1,400 global retail centres. Potash Corp., meanwhile, is the largest fertilizer producer in the world by capacity.
Agrium has been bulking up on its retail assets in recent years, starting with its $300-million deal with Viterra Inc. in 2013 that added 200 new retail outlets to its base.
The company has in recent years focused on using its various mining assets to directly feed its retail outlets, said Peter Prattas, an analyst with AltaCorp Capital Inc., while also shortening the physical distance between its production and distribution centres to cut costs. “I think this (deal) would be an extension of that strategy,” he said.
Magro and Potash Corp. head Jochen Tilk said Agrium’s growing retail business will mesh with Potash Corp.’s position as a wholesale producer of fertilizer products. The deal will link together Agrium’s phosphate, nitrogen and potash production facilities, primarily in the western half of North America, with many Potash Corp.’s mines in the eastern U.S.
Agrium’s logistics costs amount to roughly $50 per tonne, Magro said, which was part of the incentive to take advantage of Potash Corp.’s existing assets.
Together the companies estimate they will save $500 million in operating costs through the merger. The executives downplayed the potential for cuts to its future combined workforce, saying it would achieve savings through economies of scale at its operations.
Despite assurances from both executives, there is haziness around precisely how the two companies will wring those savings out of their combined operations, particularly amid falling prices for fertilizers and other products.
Potash spot prices have collapsed in recent years.