Potash Corp. and Agrium say they are in talks to combine

Potash Corp. and Agrium say they are in talks to combine

Canadian fertilizer companies Agrium Inc and Potash Corp of Saskatchewan Inc are in talks to merge, Bloomberg reported on Tuesday, in what would be tie-up of the world’s biggest crop nutrient company by capacity and North America’s largest farm retailer.

Potash Corp. abandoned a plan to take over German rival K+S a year ago after its efforts were rebuffed by management amid regulatory concerns, and after the drop in potash prices prompted the Canadian company to rethink the economics of the deal.

Shares of both companies saw gains of almost 10% before being halted by both the Toronto and New York Stock exchanges. Clearly, consolidation has been on the mind of companies in the industry.

Agrium Inc. shares rose 7 percent to $95.59.

Sam La Bell, head of research at Veritas Investment Research Corp., said market conditions are likely a motivating factor behind the merger talks. This has had both Potash and Agrium scrambling to preserve profitability.

So what: Fertilizer has been a tough business over the past couple of years.

In 2010, Ottawa blocked a takeover bid for Potash by Anglo-Australian miner BHP Billiton Ltd BHP.AX BLT.L , after political opposition from Potash Corp’s home province Saskatchewan.

Potash companies have already made moves this year to cut costs and production, with PotashCorp shutting its recently opened Picadilly mine in New Brunswick in January and temporarily closing some Saskatchewan mines.

“Of the alternatives out there, (a Potash-Agrium deal) is the one I like the best”, Bushell said.

The firm has a market capitalization of $13.47 billion and a P/E ratio of 19.81. Crop prices have also hurt, with corn Cv1 and wheat Wc1 at seven-year and 10-year lows respectively, giving farmers less incentive to maximize production with fertilizer.

A combination looks like a good fit for Potash Corp, and is preferable to a foreign takeover, said Ryan Bushell, portfolio manager at Leon Frazer & Associates, which owns Potash shares. Over the past year, spot potash prices in the US corn belt have fallen 34 per cent and other crop nutrients have also got cheaper. Potash is based in Saskatoon, Canada.

“It’s a made in Canada solution”, said Stephenson. Potash Corporation of Saskatchewan Inc. has dropped 1.66% during the last three month period. The company was privatized in 1989.

La Ball said PotashCorp and Agrium already work closely as members of Canpotex, which markets and exports Canadian potash production overseas. The Companys phosphate operations include the manufacture and sale of solid and liquid phosphate fertilizers, phosphate feed and industrial acid, which is used in food products and industrial processes.

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