Market and product

The Canadian fertilizer giants PotashCorp and Agrium announced a $38bn merger of equals, which will create the world's largest plant nutrient group.

Following the leaked news of merger talks, PotashCorp and Agrium announced a deal that they said would deliver cost savings of $500m a year, within two years of the merger.

The combined company will control about two thirds of North America's potash capacity, as well as a significant slice of the region's phosphate and nitrogen capacity.

The two companies had $20.6-billion in combined revenues this year.

Growth plans

A statement from PotashCorp highlighted "compelling growth opportunities," in the fertilizer sector.

"Recently completed investments in new, low-cost capacity, particularly in potash, will improve thenew company's operating costs and position it well to respond to increases in demand," Potash Corp said.

"Continuing to grow the retail business will also be a priority, including roll-up opportunities, new store openings, and innovation in products and services to better serve growers."

Vertical integration

The move will give PotashCorp access to Agrium's huge retail network, giving the company access to a vertically integrated supply chain for the first time.

PotashCorp doesn't market its product directly to farmers, instead selling its supplies on the wholesale market.

Agrium is more vertically integrated, selling most of the potash it extracts through its retail businesses, both in North America and overseas.

Most of Agrium's revenues come from such retail potash sales, as well as the sale of seeds and other fertilizer products.

Shares in both companies have risen since the deal, suggesting that investors are supportive of the investment plans.

Merger of equals

The deal, structured as a merger of equals, will leave PotashCorp shareholders with 52% of the combined entity, with Agrium shareholders taking the balance.

Under the terms of the merger, each Potash share will be exchanged for 0.400 common shares of the new company, while each Agrium share will be swapped for 2.230 shares of the new company.

A statement from the companies involved said the deal was expected to be finalised by the middle of next year, pending regulatory and shareholder approval.

Jochen Tilk, the chairman and chief executive of PotashCorp, will serve as executive chairman of the new company, while Agrium's chief executive Chuck Magro will be chief executive at the new company.

The new board of directors comprise equal numbers from the boards of both companies.

CanPotex control

Both PotashCorp and Agrium market export wholesale potash through the CanPotex marketing company.

The combined supplies of PotashCorp and Agrium will make up the majority of CanPotex's supply, leaving the US miner Mosaic the miner partner in the consortium.

The tie-up will therefore be subject to close scrutiny from anti-monopoly commissions both in Canada and the US. - Agrimoney News