Fertilizer giants Potash Corp. of Saskatchewan Inc. and Agrium Inc. left the door ever so slightly open to a competing offer for their companies after they were forced Tuesday to reveal that they are working on a multibillion-dollar merger.
Rival resource companies are duty-bound to see whether they can squeeze through that crack, egged on by bankers anxious to play a role in the biggest commodity deal in years.
As the latest converts to the logic that bigger is better when it comes to commodities, Potash and Agrium are talking about a “merger of equals” that would create an entity worth more than $35-billion. That approach dictates that neither company’s shareholders receive a takeover premium, and there’s no cash – only an exchange of shares.
If the two companies reach a deal, they will pitch investors on the long-term benefits of their union, such as cutting costs and increasing pricing clout with farmers. While we’re all supposed to share that view, investors have repeatedly shown that when it comes to takeovers, they prefer short-term rewards, in the form of rich cash offers.
So while Potash and Agrium rush to put the finishing touches on their merger, the handful of resource companies that can afford the $20-billion-plus price tag of crashing this party are crunching numbers and weighing a takeover bid for one of the Canadian companies.
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