Why a Potash-Agrium merger might end up growing on investors – Joe Chidley (Financial Post – September 1, 2016)


Nothing excites investors like fertilizer, apparently. On Tuesday, two Canadian heavyweights in the business — Calgary-based Agrium Inc. and Saskatoon-based Potash Corp. — confirmed they were in talks to get together, and investors jumped on the haywagon. Since news of this potential “merger of equals” broke, Potash shares have climbed by more than 12 per cent, Agrium’s by nearly eight.

No doubt, there is a lot that makes sense about this deal, should it happen. Potash Corp. is the world’s largest producer of, well, potash (nutrient-form potassium), and also has its hand in nitrogen and phosphorus — the other two elements in the fertilizer triumvirate. Agrium produces its own fair share of P-N-K, too, but also manages a mega-network of North American agricultural stores.

With a merger, both companies would enjoy less competition (and the global fertilizer industry is highly competitive); Potash would diversify its revenue stream; Agrium would get enhanced production capacity. Add in the usual merger-benefit expectations — synergies, efficiencies, cost reductions, etc. — and the markets have got very excited, indeed.

And unlike the thwarted takeover of Potash by Australia’s BHP Billiton in 2010 — effectively quashed by the then-Conservative government — there’s unlikely to be a lot of regulatory concern over this deal, since Agrium and Potash are both Canadian.

For long-time investors in Potash, a little bit of share-price growth couldn’t come at a better time. The company has cut its dividend twice so far this year; its stock, which once traded above $75 back in 2008, has been mired in the low $20s all year.

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