Agrium, Potash to merge into $36 bn fertilizer giant

Canadian rivals Agrium Inc and Potash Corp. of Saskatchewan agreed Monday to merge to create a $36 billion global fertilizer giant in the latest large agribusiness merger sparked by low crop prices.

The new company will combine potash, nitrogen and phosphate production with a global distribution network, employing nearly 20,000 people, and will generate $500 million in annual savings from their combined operations, a joint statement said.

The all-stock deal will create the largest crop nutrient company in the world, the companies said.

"The new company will be a low-cost, world-class producer of key crop nutrients including having the lowest cost potash production assets and reserves in North America," Agrium chief executive Charles Magro told analysts in a conference call.

"It will also benefit from a low-cost North American nitrogen platform and a diverse phosphate product portfolio."

The new company, which has not yet been named, will be based in Saskatoon, Saskatchewan, and be 52-percent owned by Potash shareholders, with Agrium owners holding 48 percent. The two companies had combined sales of $20.6 billion in 2015.

The deal was approved by the boards of both companies, but still must win shareholder support.

The merger comes as the global demand for fertilizers is down sharply in emerging countries like Brazil due to the economic downturn. Both companies also cited weak demand in India and other parts of Asia as a reason for a drop in earnings in the second quarter.

Shares of Potash have fallen to about a quarter of their level in 2008 as potash prices have tumbled from $900 a ton to $150 a ton.

In 2010, Potash escaped a hostile $40 billion bid from Anglo-Australian company BHP Billiton when the Canadian government blocked the transaction.

The Potash-Agrium deal comes at a challenging moment for farmers globally due to weak crop prices. The US Department of Agriculture last month projected that net US farm income for 2016 would decline 13.3 percent, marking the third straight year of decline.

By combining, the companies expect to generate operating savings from integrated production distribution, retail and procurement operations.

Executives also cited other ways they complement each other, with Agrium's nitrogen assets primarily in the western part of North America and Potash in the East.

- Wave of agribusiness mergers -

The fertilizer deal comes on the heels of a wave of consolidation in the agricultural biotechnology and seed industry, with US giants Dow Chemical and DuPont planning to combine and offering $43 billion for Switzerland's Syngenta.

German pharmaceutical giant Bayer has also bid for US company Monsanto in a deal potentially worth $66 billion, although an agreement has not been reached.

US Senator Charles Grassley, who represents farm-rich Iowa and chairs the Judiciary Committee, has scheduled a hearing September 20 on the antitrust implications of the seed deals.

"The seed and chemical industries are critical to agriculture and the nation's economy, and Iowans are concerned that this sudden consolidation in the industry could cause rising input costs in an already declining agriculture economy," Grassley said last month.

Officials from Agrium and Potash said Monday they expect the merger to be approved by regulators without major divestitures.

"It's going to be a benefit for the farming community" by boosting "technology and innovation and providing products and services for farmers that they need to maximize their wallet," said Magro.

"We're very confident this will be looked at in a way that we see it," said PotashCorp chief executive Jochen Tilk. "It is a very competitive environment."

In midday trade, Agrium shares fell 3.1 percent to $92.23, while Potash shares lost 1.8 percent at $16.68.