Reuters — Plunging crop and fertilizer prices may not have hit rock bottom yet, and the market’s weakness makes it the right time to merge leading farm input suppliers, the CEO of Agrium said on Tuesday, making his pitch to skeptical investors for a US$26 billion union with PotashCorp.
“Are we at the bottom yet? We don’t know. We know there’s more upside than downside,” said Chuck Magro, adding that fertilizer demand is growing. “This is the time in the cycle where it makes sense to do mergers and acquisitions.”
The all-stock deal would combine PotashCorp’s crop nutrient production capacity, the world’s largest, with Agrium’s farm retail network, North America’s biggest. Some Agrium investors are concerned the tie-up would leave them with greater exposure to the slumping crop nutrient potash.
U.S. prices of potash, urea and phosphate fertilizers sit well below five- and 10-year averages, as do corn and soybean values, Agrium and PotashCorp said in a joint presentation at a Scotiabank investor conference in Toronto. Oversupply of the commodities has weighed down prices.
The combined Canadian company would have greater financial heft to accelerate Agrium’s strategy to boost its U.S. market share among farm retail providers, currently less than 20 per cent, Magro said.
The merged company would also look for other acquisitions to expand globally, Potash CEO Jochen Tilk said, adding the combination makes “eminent sense.”
The companies, who announced their deal to combine last week, released on Tuesday a more detailed breakdown of the expected US$500 million in cost savings they expect to realize, including reduced purchasing costs and savings from combining fertilizer operations.
U.S.-listed shares of Agrium rose 1.9 per cent, with those of Potash up 0.8 per cent.
The deal is expected to close in mid-2017 after scrutiny by regulators, including in the U.S. and Canada. The companies are confident their union does not create fertilizer pricing or competition concerns since the markets are global in nature, Tilk said.
Rival U.S. fertilizer producer Mosaic Co., which would be dwarfed by the merged company, is also considering acquisition options, chief financial officer Rich Mack said at the conference.
The company, reported for months to be interested in Vale SA’s fertilizer business, has the means to make deals if the right opportunity arises, Mack said.
— Rod Nickel is a Reuters correspondent covering the agriculture and mining sectors for Reuters from Winnipeg.