PotashCorp, Agrium make engagement official

Fertilizer giants expect over $650 million in annual 'synergies'

(Dave Bedard photo)

The boards of two of the heaviest hitters in Canada’s fertilizer sector have formally agreed to a $47 billion “merger of equals” deal under a new, yet-to-be-named parent company.

PotashCorp, the world’s biggest fertilizer company by capacity, and rival Agrium, which is also the world’s biggest crop input retail chain, announced an agreement Monday in which the new parent firm will swap 0.4 and 2.23 shares in the new company for each PotashCorp and Agrium share respectively, based on their Aug. 29 NYSE share values.

The two companies had announced less than two weeks ago that they were in “preliminary discussions” toward a possible deal.

Agrium CEO Chuck Magro, who would be the new company’s CEO, on Monday described the deal as “a transformational merger that creates benefits and growth opportunities that neither company could achieve alone.”

The combined company would have about 20,000 employees, operations and investments in 18 countries, and a “pro forma” enterprise value estimated at US$36 billion (C$47.1 billion), with net revenue of about US$20.6 billion and EBITDA (earnings before interest, taxes, depreciation and amortization) of US$4.7 billion “before synergies” on a 2015 pro-forma basis.

The combined firm would be expected to generate up to US$500 million per year in “operating synergies” in its second year in business, mainly from mergers in its distribution and retail operations, production and procurement, and US$250 million in such “synergies” in the first year after closing.

PotashCorp CEO Jochen Tilk, who would be the new firm’s executive chairman, said the deal “creates a new premier Canadian-headquartered company that reflects our shared commitment to creating value and unlocking growth potential for shareholders.”

The deal, he said, “will greatly benefit customers and suppliers, and support even greater career development opportunities for employees.”

The two companies, which both produce potash from mines in Saskatchewan, said the merged firm would have “the lowest-cost potash production assets and reserves in North America, and a meaningful platform to benefit from continued growth in global potash demand.”

The company would also have “more diversified and complementary geographic and product portfolios in nitrogen and phosphate, with the North American nitrogen business expected to continue to benefit from low-cost feedstock and local distribution.”

Agrium’s ag retail arm, meanwhile, would bring the new company “a retail distribution platform encompassing crop nutrients and other input products, services, and solutions with operations in seven countries… (and a) combined production footprint will drive freight savings and other operational efficiencies.”

The two companies also said their married business would “remain committed” to Canpotex, the global export arm they share with Minnesota-based Mosaic Co.

All that said, a PotashCorp/Agrium merger is widely expected to be a lightning rod for review by antitrust regulators in Canada, the U.S. and other countries where the two companies do business. Farm groups in both Canada and the U.S. have already said they would ask regulators to consider the chances that input costs could rise for farmers as a result.

However, the two companies expect their deal to be sealed by mid-2017, pending approvals from their shareholders, affected countries’ competition regulators and Canadian courts.

PotashCorp’s chief financial officer Wayne Brownlee would be the new company’s CFO, while Agrium CFO Steve Douglas would be the new firm’s “chief integration officer,” with other head-office management to be named later. The two companies’ boards of directors would have “equal representation” on a new board, with Agrium naming the independent lead director.

The new company’s head office would be in PotashCorp’s home city of Saskatoon, but it would also maintain corporate offices in Agrium’s home city, Calgary. The two firms said the new business would keep a “strong workforce in each of its operations” and “maintain its commitments to community involvement and investment.” — AGCanada.com Network

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