PotashCorp withdraws takeover bid for K+S

New York/Frankfurt | Reuters –– PotashCorp said Monday it had withdrawn its 7.9 billion euro (C$11.6 billion) offer for German potash producer K+S, citing a decline in global commodity and equity markets and a lack of engagement by K+S management.

K+S shares dropped 24 per cent after Potash announced its decision in a statement, wiping almost 1.5 billion euros off the company’s market value.

An acquisition of K+S would have given Saskatoon-based PotashCorp an opportunity to realize savings from selling potash within North America from its own Western Canada mines and from K+S’s Legacy mine, under construction at Bethune, Sask., northeast of Moose Jaw.

However, senior K+S executives dismissed the Saskatchewan company’s 41-euro-per-share cash bid — which represented a 59 per cent premium to the volume-weighted average of K+S’s share price during the prior 12 months — as too low, and refused to negotiate.

Since PotashCorp made its offer to K+S privately at the end of May, shares of K+S peers have dropped by around 40 per cent amid concerns over weakening demand from China, the world’s largest consumer of potash.

“We withdrew our proposal, frankly, with some disappointment as the strategic rationale for the transaction was compelling in our view,” PotashCorp CEO Jochen Tilk said in a letter to K+S’s supervisory board, dated Sunday and obtained by Reuters.

“Nonetheless, in light of the market conditions… and a lack of engagement by K+S management, we have concluded that the pursuit of a business combination with K+S is no longer in the best interest of PotashCorp’s shareholders,” he said.

K+S chairman Norbert Steiner said in a statement Monday that PotashCorp’s decision “creates clarity” for the German firm.

“We are convinced that we can successfully develop our company based on a consistent implementation of our two-pillar strategy in the long term. We are strong in potash and in salt.”

K+S had previously voiced fears that PotashCorp could dismantle the company and eliminate jobs, and that its pledges to the contrary were too vague. PotashCorp argued its proposal was not based on closing mines, curtailing production, selling K+S’s salt business or cutting jobs.

“This will increase pressure on K+S management to come up with measures to improve the value of K+S in this challenging commodity environment,” Baader Bank analyst Markus Mayer said.

Equinet analyst Michael Schaefer, who recommends that investors buy K+S shares, said the German company’s upcoming investor day on Nov. 12 could be a good opportunity for management to try to persuade investors of its value.

PotashCorp, meanwhile, plans to focus on its growth strategy, according to people familiar with matter who asked not to be identified as the matter remained confidential.

— Reporting for Reuters by Greg Roumeliotis in New Tork and Arno Schuetze in Frankfurt. Additional reporting for Reuters by Rama Venkat Raman in Bangalore, Maria Sheahan and Patricia Weiss in Frankfurt. Includes files from AGCanada.com Network staff.