Fertilizer giants in merger talks

The potential merger of two fertilizer giants will have no impact on product availability or prices, says an industry analyst.

PotashCorp and Agrium announced last week they were holding preliminary discussions about merging the two Canadian companies.

Farm groups such as the Agricultural Producers Association of Saskatchewan have expressed concern that a merger would lead to less competition in the fertilizer market.

Glen Buckley, chief economist with NPK Fertilizer Advisory Service, doesn’t believe that will be the case.

“From the standpoint of the Saskatchewan farmer, I don’t see any difference at all. There is no market impact on this at all,” he said.

Buckley would have been concerned if PotashCorp and Agrium had a lot of overlapping assets.

“In this particular situation, these two companies don’t really compete against each other very much, particularly when you get out into Western Canada,” he said.

There have been mergers in the past that reduced competition in the fertilizer industry like when CF Industries acquired Terra Nitrogen Company and when the Mosaic Company acquired the phosphate assets of CF Industries.

In those two cases, there was considerable asset overlap, which led to cost-cutting and huge savings.

That is why Buckley is so perplexed by the proposed merger of PotashCorp and Agrium. Both companies produce nitrogen, phosphate and potash fertilizers but he sees little opportunity for cost-cutting based on where the assets are located and what markets they serve.

There would be some general and administrative cost savings. “You can get rid of some expensive VPs and an expensive CEO,” he said.

But those expenses are a drop in the bucket compared to the savings associated with streamlining logistics, reducing sourcing costs and eliminating competition.

Buckley believes Agrium and CF Industries would be a better merger because CF Industries could supply Agrium’s Crop Production Services’ (CPS) retail network with nitrogen fertilizers.

“They could completely feed the CPS system and Agrium wouldn’t have to be buying all this product, so that’s an ideal fit,” he said.

This isn’t the first time PotashCorp has been a mergers and acquisitions target. BHP Billiton attempted a $40 billion hostile takeover of the company in 2010.

That takeover was thwarted when the Canadian government ruled it would not provide a net benefit to the country.

Saskatchewan Premier Brad Wall was also opposed to the BHP takeover but he is amenable to the PotashCorp/Agrium merger.

The chief executives of both companies contacted the premier as soon as news of the merger talks was leaked and assured Wall that maintaining Saskatchewan jobs and royalties would be an important part of the new entity.

“These considerations have been paramount in preliminary discussions and should the discussions advance they would continue to be a top priority,” Wall told reporters.

“So I was grateful to hear that.”

He believes the merger could result in Agrium shifting some corporate staff out of Calgary and into Saskatoon where PotashCorp is headquartered.

“We would view this potentially, if it were to come to fruition, as an opportunity to pursue an even greater corporate presence in Saskatchewan,” said Wall.

Buckley has no idea where the company would be headquartered but he said Agrium likely has the upper hand in the negotiations because it is in better financial shape despite having a market capitalization of $17.5 billion versus $20 billion for PotashCorp.

He said the merged company would be a big enough entity that it could fend off any unwelcome advances from other companies.

“A merged company has much more survivability,” he said.

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