AGU Agrium Inc. (delisted)

By Jacquie McNish and Judy McKinnon 

TORONTO -- Canadian fertilizer giants Agrium Inc. and Potash Corp. of Saskatchewan Inc. confirmed plans to merge on Monday, in a deal that would create a crop-nutrient giant valued at about $27 billion.

Joining forces with Agrium offers Saskatchewan-based Potash, the world's largest fertilizer producer by capacity, protection against volatile fertilizer prices, through Agrium's steadier retail network. That system also would lower Potash's distribution costs, while expanding fertilizer sales.

Agrium's retail arm, North America's biggest for fertilizer, seeds and equipment, generates the bulk of the Calgary-based company's sales. For Agrium, the deal would bolster its volume of potash and other fertilizer ingredients.

Potash prices have been under pressure since 2013, when Russian producer Uralkali JSC pulled out of its sales partnership with Belarusian Potash Co. Slowing demand from emerging markets amid a flood of supply has prompted merger discussions in the fertilizer sector.

Agrium CEO Chuck Magro said in an interview that he first explored merger discussions with Potash's CEO Jochen Tilk last year as they sought opportunities to lower costs.

Mr. Magro said Potash is the "right partner" because of the potential for significant cost reductions. "We're going to be much more able to manage the storms in the commodity market," he said

Agrium also held preliminary talks with Minnesota nutrient producer Mosaic Co. in early 2016, but the discussions were unsuccessful, according to people familiar with the matter. Spokespeople for both companies declined to comment on those talks.

The merger between Potash and Agrium would be the latest in a series of global farming-sector deals. Those include the pending merger of Dow Chemical Co. and DuPont, and China National Chemical Corp.'s planned takeover of Swiss pesticide and seed company Syngenta AG.

U.S. lawmakers said last month that they plan to hold a hearing to examine this wave of mergers, saying the deals potentially could reduce competition and lead to higher prices.

Potash shareholders would own about 52% of the new company and Agrium shareholders would own about 48%. The two have a current combined market capitalization of about $27 billion. The merged company would have annual revenue of nearly $21 billion.

The Potash-Agrium tie-up is expected to face scrutiny from antitrust regulators in the U.S. and Canada, among others, concerning the combined companies' North American share of global potash production capacity, analysts say. The two together would control 23% of global production capacity, but 60% or more of North American capacity, ahead of Mosaic and Intrepid Potash, National Bank said in a note ahead of Monday's announcement.

Mr. Magro, who is to become CEO of the new company, said he is "highly confident" the proposed merger won't trigger antitrust issues. He said the potash market has become very competitive with the emergence of new producers, and there is very little overlap in the companies' nitrogen and phosphate operations.

The deal likely would sow further unease among North American farmers wary of reduced competition and higher prices as top seed and pesticide developers pursue their own tie-ups.

Already grappling with a three-year slide in major crop prices, some farmers are concerned that mergers between some of the world's largest farm-supply companies will consolidate pricing power among fewer players and lead to higher costs at a time when farmers are scrimping to eke out profits.

Fertilizer accounts for about one-fifth of corn farmers' total costs, and about 7% for soybeans, according to the U.S. Agriculture Department.

The companies estimated the deal would generate up to $500 million in annual operating synergies, and the company would employ about 20,000.

Agrium has more than 1,200 retail outlets, mostly located in Canada and North America, and sells a little more than 10% of the nitrogen, phosphate and potash it manufactures to industrial customers. The rest goes to retail customers.

Potash's Mr. Tilk will be executive chairman of the combined company, which will be based in Saskatoon, Potash's current headquarters. However, it will maintain corporate offices in Calgary.

Potash sales have been hurt by Brazil's slumping currency, which undercut demand from one of the world's big consumers of the fertilizer. More recently, prices also were hurt by delays in the signing of supply contracts with China and India, two of the other largest fertilizer markets.

Both companies say, though, there are signs pointing to increased-volume sales of potash through the rest of the year. Outside of North America, Potash and Agrium sell the crop nutrient through Canpotex, a Saskatchewan-based exporter that also includes rival Mosaic Co.

Under the agreement, Potash shareholders would receive 0.4 common share of the new company for each common share they own and Agrium shareholders would receive 2.23 common shares of the new company for each common share of Agrium they own.

On Monday afternoon, Agrium shares were down 2.5%, trading in New York at $92.80, and Potash shares were down 1.2%, trading at $16.76.

The companies, which first announced they were in preliminary discussions late last month, said they expect the deal to close in mid-2017.

Jacob Bunge contributed to this article

Write to Jacquie McNish at Jacquie.McNish@wsj.com and Judy McKinnon at judy.mckinnon@wsj.com

Corrections & Amplifications: On Friday, Agrium shares closed at $124.14 Canadian dollars ($94.69) and Potash shares closed at C$22.14. An earlier version of this article incorrectly switched the companies' share prices.

(END) Dow Jones Newswires

September 13, 2016 02:48 ET (06:48 GMT)

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