More than 140 respondents visited the Green Markets website April 10-15 to register their opinions in a brief survey about the proposed mergers between Agrium Inc. and CF Industries Inc., and CF and Terra Industries Inc. Those who voted represented all links in the distribution chain, from producers to wholesalers and retailers, and also included financial analysts, bankers, and industry consultants.
Green Markets opened the poll on April 10, asking participants to answer five questions about which of the proposed mergers they thought would happen – if any – and whether they supported or opposed any of the business combinations. Respondents then had an opportunity for brief comments, which produced some candid observations about the companies and the likely impacts of the mergers on the North American fertilizer industry. The survey was closed at midday on April 15.
By far the most responses came from fertilizer dealers, who represented 46.9 percent of respondents. Those identifying themselves as wholesalers or traders made up 19.6 percent of the survey, while fertilizer producers represented 13.3 percent. The remaining 20.3 percent of respondents represented a varied group under the heading “other,” which including consultants, analysts, bankers, investors, and fertilizer consumers.
Overall, 59.9 percent of respondents said they opposed the Agrium/CF merger, 42.3 percent said they opposed the CF/Terra merger, and 29.6 percent said they were not opposed to either merger. Among those identifying themselves as fertilizer producers, 21.1 percent stood in opposition to Agrium/CF and an identical number said they were opposed to CF/Terra, with 68.4 percent saying they opposed neither combination.
In the fertilizer wholesaler and trader category, however, fully 89.3 percent said they were opposed to Agrium/CF, 53.6 percent said they were opposed to CF/Terra, and only 7.1 percent said they were not opposed to either merger. Those identifying themselves as fertilizer dealers showed similar if not as pronounced results, with 68.2 percent saying they were opposed to Agrium/CF, 48.5 percent registering opposition to CF/Terra, and 19.7 percent saying they opposed neither combination.
Of those respondents who fell in the “other” category, 37.9 percent said they opposed Agrium/CF, 31 percent said they opposed CF/Terra, and 48.3 percent said they didn’t oppose either merger.
Even if the Agrium/CF combination sparked the greatest opposition from respondents, many also believed it has the greatest chance for success. As to what they thought would ultimately happen, 43.7 percent of respondents said they believed the Agrium/CF deal would be realized, while 23.2 percent said they thought CF would acquire Terra. Overall, 34.5 percent of respondents said they thought neither merger would occur.
Among those identifying themselves as fertilizer producers, the results were more lopsided. Of these, 63.2 percent said they thought Agrium would merge with CF, 36.8 percent said neither merger would occur, and none believed CF would conclude its deal with Terra.
In the wholesaler/trader group, and perhaps reflecting a case of wishful thinking, a 59.3 percent majority said they believed neither merger would occur, while 25.9 percent said Agrium and CF would merge, and only 18.5 percent said the CF/Terra deal would occur. Among fertilizer dealers, more than 68 percent of whom had said they opposed an Agrium/CF combination, fully 40.3 percent thought the Agrium/CF merger was inevitable, while 31.3 percent said they believed CF and Terra would reach an agreement. The remaining 29.9 percent of dealer respondents said neither deal would be realized.
The votes from those who fell in the “other” category showed that 55.2 percent believed Agrium would conclude its acquisition of CF, 24.1 percent said CF would acquire Terra, and 20.7 percent said neither combination was likely to occur.
The preponderance of comments registered by respondents showed rather strident opposition to any of the mergers, with many expressing fears about the loss of competition in the North American fertilizer market. “I am VERY skeptical of continued fertilizer production/distribution consolidation in the U.S.,” wrote one who identified himself as a fertilizer dealer. “So far, all it has led to are skyrocketing grower prices, ‘strong arm’ tactics being used on the retail chain to better fertilizer producer cash flow, and unreasonable pricing vulnerability being jammed down the throat of (the) retail chain. These mergers are not good for American growers!”
“I think that fertilizer production is already controlled by too few companies,” wrote another fertilizer dealer. “Maybe that is just progress – but fewer companies means fewer choices – and fewer choices means less competition and potentially higher prices and little if any negotiation power.”
“Retailers fear consolidation will squeeze them out due to supply restrictions, especially among independents who do not (have) preferential contracts with Agrium, and I tend to side with them,” wrote one who identified himself as a consultant.
Another respondent who identified himself as a fertilizer producer expressed doubts about the touted advantages of the mergers. “There is no real value created by the mergers of these companies,” he wrote. “The projected savings in administration and sales are offset by the increase in complexity of managing previously focused companies. The merger ideas were born during the irrational exuberance created by historically high fertilizer prices. As the commodity market rationalizes, the profitability of all these entities will decrease to historic levels because the product price will be based on manufacturing cost, not product worth.”
“While synergies are extolled, I do not believe there is any benefit to the buyer to consolidate materials in fewer hands,” wrote a trader/wholesaler. “One has to question if CF is big enough to handle a Terra and if Agrium will decide to favor their own retail supply chain over other retailers.”
Several respondents spoke on behalf of farmers in their opposition to the mergers. “I would like to see the farm groups get involved and weigh in on this issue,” wrote one dealer. “The end user will be the one most affected by any additional mergers. I as a retailer am opposed to any mergers in the fertilizer industry. Just look at what prices have done the past two years!” Added another dealer, “At what point is ‘big’ big enough? Growers should also have a voice in this discussion.”
On the plus side, one respondent wrote that “a consolidation of North American producers is necessary to effectively compete in the global market.” Added another, “The merger of CF and Terra would put the new company on a more even level with PCS, Mosaic and Agrium to compete long term. The Agrium merger would strengthen Agrium’s nitrogen and phosphate business and could test some domestic market share challenges. Your picture of the different size fishes told the whole story!”
As one producer respondent wrote, “Consolidation (is) unavoidable in the fertilizer industry.”