PotashCorp of Saskatchewan, the world’s largest potash supplier, and its rival Agrium are in talks to combine in a deal that could create a near-$30bn fertiliser giant.
The move comes a year after PotashCorp failed to acquire Germany’s K+S and as the Canadian company has been actively trying to consolidate an industry marred by falling commodity and equity prices.
Although the structure and terms of the deal were unknown those briefed on the deal said the transaction would be a merger of equals, which suggests that the combination could be all in stock.
In a short statement PotashCorp warned that “no decision has been made as to whether to proceed with such a combination, no agreement has been reached, and there can be no assurance that any transaction will result from these discussions”.
Shares in PotashCorp, dual-listed in New York and Toronto, were up more than 13 per cent, after Bloomberg first reported the talks, giving the company a market capitalisation of about $15bn. Agrium’s stock also instead rose 7 per cent, giving the group an equity value of around $13bn.
News of a possible deal also lifted the share prices of rival fertiliser producers, such as Mosaic and Intrepid Potash, as a deal could lead to further consolidation in the sector.
Fertiliser companies including PotashCorp and Agrium are struggling with industry overcapacity, although some producers hope a series of mine closures and suspensions over recent years will stabilise the industry.
“Nearly everything has gone wrong for the industry” since 2011, analysts at Morgan Stanley wrote this year. “The potash industry is going to struggle to meaningfully improve profitability in both the short and medium terms.”
A supply cartel involving Russian and Belarusian producers ruptured in 2013, helping to drive down prices more than 50 per cent since 2011 in some key markets in Latin America and Asia.
“I don’t think this merger would produce enough concentration in any commodity to raise regulators’ concerns,” said Oliver Hatfield, of Integer Research, a consultancy.
“This is an industry that has become much more competitive and where there has been a lot of overinvestment in new capacity in response to the boom times, so this is partly a defensive move by the companies — but it also makes sense in terms of vertical integration. Agrium has been developing its downstream business and this would be a way of pushing more product through those distribution channels.”
Last year PotashCorp’s €7.8bn offer to buy K+S, a German producer that remains outside both the eastern European and North American supply groups, was rebuffed as the two failed to reach an agreement on price.
A deal with K+S would have allowed PotashCorp to combine with another of the top- five producers, giving the Canadian group control of about one-quarter of global supply.
BHP Billiton, the world’s largest mining company which previously failed in an attempt to take over PotashCorp in 2010, has slowed down its plans to enter the market. It is sinking shafts at a project in Canada but has yet to authorise more investment and has admitted the $2.6bn project could be mothballed if prices do not improve.
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