Canadian fertilizer giant Agrium just got a whole lot bigger with a $39 per share offer for all of the outstanding shares of another agriculture supply giant, UAP.
The UAP purchase is expected to improve Agrium’s retail links to producers across the United States. It will cost the Canadian company about $2.65 billion. UAP shares were trading at $29.91 Nov. 30, and Agrium’s offer is 30 percent above that.
The agreement to purchase was unanimously approved by both boards of directors.
Agrium is a major fertilizer producer of potash, phosphate, nitrogen and micronutrients.
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UAP is North America’s largest independent distributor of agricultural input products including seed, fertilizer and chemicals, as well as offering farm production consulting and custom application
services.
The offer to UAP shareholders will be tendered Dec. 10 and expires Jan. 6. Agrium expects the deal to be completed next month.
Agrium chief executive officer Mike Wilson told reporters Dec. 3 that his company’s comfort with the strength of agricultural markets means the takeover of UAP will deliver results to its shareholders.
The company plans to find annual savings of $115 million by 2010 through the purchase.
Agrium cites the lowest global grain inventories in history as improving the future of agriculture.
The U.S. Department of Agriculture’s most recent forecast of international grain production and use showed the two figures nearly tied at more than one billion tonnes.
Wilson told reporters that global cereal reserves are predicted to fall to 3.9 percent of production during next year’s growing season. The resulting higher than average grain prices will push farmers to maximize their production through farm input purchases, increasing the sales volume and price of those products.
Agrium cites a Doanes Agricultural Service forecast that suggests corn will achieve a new, higher base for price and annual production in the U.S. and create new market opportunities for the combined company.
UAP had North American sales of $3.2 billion in 2006-07. Chemical sales represented 54 percent, fertilizer was 29 percent and seed 14, with three percent for other services and products. The company has 370 outlets on the continent.
A combined company with the projected savings of $115 million annually would have retail sales of $5.2 billion with total sales of more than $8 billion.
Both companies have experienced a 16 percent increase in seed sales in the past three years and the acquisition of UAP will boost Agrium’s seed business from $192 million to $642 million.
Agrium also sees the sale as a move that diversifies both companies against regional weather risks and commodity market shifts. Agrium said the addition of its retail products to the UAP’s service-oriented retail centres will improve service to farmers and increase sales opportunities for the joint company.
Agrium has debt financing for the deal that will shift its current debt to equity ratio to 45:55 from 35:65.
Agrium’s shares on the Toronto Stock Exchange were up more than eight percent, or $5.10, in mid-day trading after the Dec. 3 announcement.
