Fertilizer majors Potash and Agrium in $36bn mash-up

November 2016 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

Despite a number of reservations being expressed by the investment community, Canadian fertilizer giants Agrium Inc and Potash Corporation of Saskatchewan Inc announced they are to merge in a deal valued at $36bn.

The transaction, a merger of equals between the largest crop nutrient company in the world, PotashCorp, and the third largest natural resource company in Canada, Agirum, combines low-cost, world-class potash and high-quality nitrogen and phosphate production assets with a premier agricultural retail network to forge an integrated crop inputs platform.

The new company, which will be named prior to the transaction’s closing, will be a leader in the fertilizer industry with close to 20,000 employees, operations and investments in 18 countries. Among the strategic and financial benefits of the merger are: compelling growth opportunities; a strong balance sheet with significant cash flow generation; and significant value creation from synergies.

As well as maintaining a strong workforce in each of its operations, PotashCorp/Agrium representatives have pledged that the new company will maintain its commitments to community involvement and investment.

Under the terms of the agreement, PotashCorp shareholders will receive 0.400 common shares of the new company for each common share of PotashCorp they own, and Agrium shareholders will receive 2.230 common shares of the new company for each common share of Agrium they own.

Following the close of the transaction, PotashCorp shareholders will own approximately 52 percent of the new company, and Agrium shareholders will own approximately 48 percent on a fully diluted basis.

Furthermore, the board of directors of both companies have unanimously approved that a new parent company will be formed to own both companies.

“Our merger creates a new premier Canadian-headquartered company that reflects our shared commitment to creating value and unlocking growth potential for shareholders,” said PotashCorp president and chief executive Jochen Tilk. “The integrated platform established through our combination will greatly benefit customers and suppliers, and support even greater career development opportunities for employees. Our workforce and the communities in which we operate are critical to both PotashCorp and Agrium.”

The new company’s board of directors will have equal representation. The board’s independent lead director will be designated by Agrium. In addition to leading the board of directors, the executive chairman will have executive responsibility for the new company’s business strategy function. In addition, the new company will have its registered head office in Saskatoon, with Canadian corporate offices in both Calgary and Saskatoon.

“This is a transformational merger that creates benefits and growth opportunities that neither company could achieve alone,” said Agrium president and chief executive Chuck Magro. “Combining our complementary assets will enable us to serve our customers more efficiently, deliver significant operating synergies and improve our cash flows to provide capital returns and invest in growth.”

For Agrium, Barclays Capital Inc. and CIBC Capital Markets are serving as financial advisers, with Blake, Cassels & Graydon LLP, Norton Rose Fulbright Canada LLP, Paul, Weiss, Rifkind, Wharton & Garrison LLP, and Latham & Watkins LLP serving as legal advisers. For PotashCorp, BofA Merrill Lynch and RBC Capital Markets are serving as financial advisers, with Stikeman Elliott LLP and Jones Day serving as legal advisers. Financial adviser for both Agrium and PotashCorp is Morgan Stanley & Co LLC.

The PotashCorp/Agrium transaction is expected to close during mid-2017, subject to the satisfaction of customary closing conditions, including receipt of regulatory approvals, Canadian court approval and approval by the shareholders of both companies.

Mr Tilk concluded: “We intend to carry forward best practices from both companies in corporate social responsibility, including commitments to employees, operating communities and the environment.”

Fraser Tennant