Potash Corporation of Saskatchewan (USA) (NYSE:POT) and Agrium Inc. (USA) (NYSE:AGU) are officially merging in a deal that would value the combined entity at some $36 billion in enterprise value and $27 billion in market value.
The deal, first announced near the end of August, could produce as much as $20.6 billion in annual revenue, as Potash combines its fertilizer mining operations with Agrium’s robust retail network.
The combined company will be based in Saskatoon, which is Potash’s current location, and have 20,000 employees in total.
Both companies estimate the deal will create as much as $500 million in cost savings per year, thanks to the integration of distribution and retail.
Taking over the C-suite will be Agrium CEO Chuck Magro, with Potash CEO Jochen Tilk holding the position of executive chairman.
What This Means for AGU and POT Stock
Under the deal, POT stock holders take home 0.4 shares of the combined company for every share of Potash owned; AGU stock holders will own 2.23 shares per Agrium share owned. That gives Potash shareholders control of 52% of the merged firm, with 48% going to AGU stock owners. As of this writing, POT stock is up 3%, while AGU stock is trading a percent higher.
The merger is less of a power move and more of a necessity, as several companies in the agricultural chemicals market have struck deals to stave off low commodity prices and unwinding demand. For example, in the second quarter, Potash reported prices of $154 per tonne versus $273 per tonne in the year-ago quarter. In 2008, the per-tonne price was around $900.
Cutting costs is the name of the game here, and with the newly merged company having better control over its fertilizer output, it will be able to close the mines it doesn’t need.
The merging of Agrium with Potash will enable the company to both produce fertilizer and sell directly to a network of farmers through American retail outlets. According to Magro:
“This is a transformational merger that creates benefits and growth opportunities that neither company could achieve alone. Combining our complementary assets will enable us to serve our customers more efficiently, deliver significant operating synergies and improve our cash flows to provide capital returns and invest in growth.”
The merger is expected to close by mid-2017.
As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.
