PotashCorp of Saskatchewan, one of the world’s largest potash producers, has agreed to combine with smaller rival Agrium in a deal that will create a crop nutrient group with a market capitalisation of almost $30bn.
The deal, the first large fertiliser merger, comes as the agri-chemical sector is undergoing its most significant shake-up in decades after having been hit by plummeting commodity and equity prices. It is expected to close in mid-2017.
The wave of consolidation in agricultural seeds and chemicals has led Dow Chemical and Dupont to combine in a $130bn deal, ChemChina is set to complete its $44bn acquisition of Syngenta, and Bayer is in talks to buy Monsanto for $56bn.
The pace of consolidation has already led to concerns from the agriculture industry about increased prices for seeds and sprays, which might also spark scrutiny from antitrust authorities in the deal between PotashCorp and Agrium.
Jonas Oxgaard, analyst at Bernstein, said that the two largest variable costs to farmers were seeds and fertilisers, which meant that “the consolidation of farmer suppliers might provide political pressure against the deal,” but added that, “ultimately [we] don’t see this blocking it”.
Jan Slomp, president of the National Farmers Union in Canada, said farmers had been squeezed by consolidation among companies that both sold them crop inputs and purchased their crops.
“That means reduced competition,” he said. “That is a concern of course. Nitrogen fertiliser is probably the single most handled commodity by Agrium and potassium by Potash. Those are the two biggest fertiliser inputs that farmers are using.
“It is time our governments stepped in and made sure that not everything is downloaded to farmers. The income situation of farmers has definitely gone down in the last few years,” he said.
Chuck Magro, chief executive of Agrium, who will become the enlarged group’s chief executive, and Jochen Tilk, chief executive of PotashCorp, who will become the new executive chairman, told the Financial Times that there were no serious regulatory risks to the deal.
“We think we’ll create substantial synergies, $500m annually, $5bn in aggregate, and we think this is good for the farmers, it lowers costs, it creates efficiencies and ultimately that is good for our customers and its good for the farmers,” Mr Tilk said.
The two executives said that the there would be very few job cuts as a result of the deal. “Redundancies will be very small and not significant as it relates to the synergies we anticipate,” Mr Tilk said.
Like the seeds and chemicals sector, the crop nutrients industry has suffered depressed profit margins over the past few years because of the prolonged weakness in crop prices. In the first half of 2016, PotashCorp’s earnings plunged 75 per cent, hit by sluggish potash prices, while Agrium saw net profits decline 18 per cent.
The combined group, which will be named before the deal closes, will generate sales of about $20.6bn and earnings before interest, tax, depreciation and amortisation of $4.7bn before synergies.
Under the all-share deal, which is expected to close in mid-2017, PotashCorp shareholders will receive 0.4 shares of the new company, while Agrium investors will get 2.230 shares for each Agrium stock. At the close of the deal, PotashCorp shareholders are expected to own about 52 per cent of the combined company, with Agrium’s shareholders controlling the rest.
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