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$36 Billion Company to be Created by Merger of Potash Corp and Agrium

$36 Billion Company to be Created by Merger of Potash Corp and Agrium
A deal that would create a fertilizer giant with an enterprise value of about $36 billionis on the cards after Canada's Agrium Inc and Potash Corp of Saskatchewan Inc agreed to combine. The deal is however expected to draw scrutiny from U.S. regulators.
The combined entity would be largest crop nutrient company in the world, said Agrium, North America's largest farm retailer and Potash Corp, the world's biggest crop nutrient company by capacity.
Both the companies had said last month that they were in talks for a merger. National Bank analyst Greg Colman had said at the time that a merger would create a company with 30 percent of phosphate production capability and 29 percent of nitrogen capacity and would controlling nearly two-thirds of potash capacity in North America, making it a dominant company in the region.
The potential combinations of seed giants Monsanto Co and Bayer AG, and ChemChina and Syngenta preceded this deal in a string of agriculture merger attempts. Excessive supply and weak demand have resulted tumbling crop nutrient prices and hence losses for Fertilizer companies. Farmers are facing less incentive to maximize production with fertilizer as crop prices have also been hurt, with corn and wheat at seven-year and 10-year lows respectively.
The companies said on Monday that Agrium shareholders will get 2.230 common shares for each share they own and Potash Corp shareholders will get 0.400 common shares of the combined company for each share they hold. After completion of the deal, expected to be completed by mid 2017, Agrium shareholders would own 48% and Potash Corp shareholders will own about 52 percent of the new company.
The companies said that the combined earnings before interest, taxes, depreciation and amortization (EBITDA) of $4.7 billion before synergies and have had 2015 net revenue of about $20.6 billion.
Primarily due to advantages from distribution and retail integration, production and SG&A optimization, and procurement, the companies expect annual operating synergies of up to $500 million from the merger.
Potash Corp CEO Jochen Tilk will be its executive chairman and Agrium Chief Executive Chuck Magro will lead the combined company.
"Other than the trotting out the usual banalities of 'pre-eminent low-cost producer,' there is little to substantiate how $500 million in synergies will be achieved," said independent analyst and investor Chris Damas, noting that Russian rival Uralkali has a lower cost of potash production than even that of Potash Corp's largest mine.
"This is more Agrium buying Potash Corp than vice versa," he added in a note. In the combined entity, the shots would be called by Magro – a protégé of the Agrium's long-time former CEO Mike Wilson, he pointed out.
With Canadian corporate offices in both Calgary and Saskatoon, the new company will be headquartered in Saskatoon following the close of the transaction.
While BofA Merrill Lynch and RBC Capital Markets are Potash Corp's financial advisers, Barclays Capital Inc and CIBC Capital Markets are Agrium's financial advisers. Morgan Stanley & Co LLC is serving as joint financial adviser to Agrium and Potash Corp.

Christopher J. Mitchell

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