Potash Corp. of Saskatchewan Inc. and Agrium Inc. both confirmed Aug. 30 that they are in preliminary discussions regarding a potential merger of equals. They said 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 announcement quickly followed a report by Bloomberg that the two were in merger talks, with a possible announcement as early as next week.
PotashCorp. shares popped up 11 percent to close at $17.79 Aug. 30 on the New York Stock Exchange, while Agrium’s were up 7 percent, closing at $95.76. While many industry observers were surprised by the news, they were skeptical, noting that other mergers announced in the past few years have not proceeded for various reasons.
“The combined company would be unlikely to be able to influence pricing from a supply-side standpoint, as excess capacity is still the story across the N-P-K spectrum,” said Neil Fleishman, Green Markets Director of Research. “In potash in particular, the existing frame of Canpotex suggests no change to pricing power. An already consolidated potash market also points to antitrust concerns. Synergies would likely have to come from combining production assets with integration into Agrium’s extensive retail distribution.”
PotashCorp’s annual nameplate capacities are potash 16 million mt, ammonia 4.1 million mt (including Trinidad and Tobago assets), urea 1.9 million mt, AN 1.3 million mt, UAN 2.5 million mt, DAP/MAP ~1.75 million mt, and phosphate rock ~9.6 million mt, according to Green Markets estimates.
Agrium’s annual nameplate capacities include potash 3 million mt, ammonia 2.9 million mt, urea 3.42 million mt (including the Borger increase), AN 0.25 million mt, UAN 0.72 million mt, MAP at 1 million mt, and phosphate rock at about 1.3 million mt. Agrium also owns 50 percent in Profertil in Argentina, with ammonia 0.9 million mt and urea 1.3 million mt. Agrium owns 26 percent of MOPCO in Egypt, with ammonia 1.2 million mt and urea 1.9 million mt. It also sources rock from OCP in Morocco for its Canadian phosphate plant.
PotashCorp has shown resolve in closing down higher-cost production. Fleishman noted that it could do likewise with Agrium’s Vanscoy potash mine.
While some financial analysts last week were not too concerned about antitrust issues, citing international overhangs in commodity fertilizer production, farmer and dealer groups may see things differently with one less supplier. Manitoba-based Keystone Agricultural Producers told Green Markets Sept. 1 that it normally contacts the Canadian Competition Bureau whenever a merger affects the agriculture industry. For this one, it said it is awaiting the details.