Potash Corporation of Saskatchewan (USA) (NYSE:POT) Has Merged With Agrium (AGU)

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Potash Corporation of Saskatchewan (USA) (NYSE: POT) and Agrium Inc. (USA) (NYSE: AGU) are in talks that could see them combine to create the world’s largest fertilizer company. The options that Potash Corporation and Agrium are pursuing include a merger of equals.

The companies are contemplating a merger at a time when they are both faced with intense competition in the business of selling crop nutrients. The competition has destroyed the price of potash, thus hurting profit margins of potash producers and Potash Corporation and Agrium are among the players feeling the heat.

Merger synergies

The potential synergies in the merger of Potash Corporation of Saskatchewan (USA) (NYSE: POT) and Agrium are difficult to ignore. First, the combined company would enjoy massive economies of scale, paving the way for savings in the acquisition of raw materials. The saves could see the company lift its profit margins and provide greater value for shareholders.

The combined company of Potash Corporation and Agrium could also have great influencing in determining potash prices, thus allowing room for higher margins. Given that Agrium’s current retail footprint covers about 17% of the U.S. market, it could drive on the shoulders of Potash Corporation to grow its market share.

Combining Potash Corporation with Agrium would enable the companies to jointly leverage their unique capabilities to strengthen their market positions.

Backlash

However, the merger of Potash Corporation of Saskatchewan (USA) (NYSE: POT) and Agrium is sure to generate widespread criticism. The fact that the combined company would control nearly 60% of the U.S. potash production is something that is already keeping farmers on the edge of their seats.

Given how Potash Corporation and Agrium are likely to impact competition in the fertilizer market, obtaining regulatory approval for the merger can be a tall order.

Appetite for deals – Potash Corporation of Saskatchewan (USA) (NYSE: POT)

Potash Corporation of Saskatchewan (USA) (NYSE: POT) has recently shown a desire to enter into deals that could help it grow sales over the long-term and survive near-term pressure. The company attempted to acquire K&S AG last year but its overtures were rejected. With that, it means that the company would still pursue potential deals even if the attempts to merge with Agrium were to fall flat.

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2 Comments

  1. “First, the combined company would enjoy massive economies of scale, paving the way for savings in the acquisition of raw materials. The saves could see the company lift its profit margins and provide greater value for shareholders.”

    Not exactly. The production facilities in place are all needed to produce the quantity of product the two companies produce independently. This isn’t a case of being able to reduce overhead positions — accountants and the like, although there may, in the future be some of that. But that is minimal compared to the basic costs of mining and processing the product. That will remain so long as production facilities are not shut down.

    “The fact that the combined company would control nearly 60% of the U.S. potash production is something that is already keeping farmers on the edge of their seats.”

    Uh . . . both are CANADIAN companies, producing in Canada, and selling to the US market.

    Exactly how did you get this job? I doubt I’ll be using your “expertise” in my investment decisions.

    • That’s not my question. Does an increased economy of scale work to the advantage of combined forces inthis marriage? Bigger not always equates to efficiency. I happen to like the Ag industry in general as it has a second final customer not tied to feeding the masses, ethanol, which is growing out of government support and financing. May not like it but it’s here just the same. The industry is presently seeing lower valuations pretty much across the spectrum. Time to get interested? Perhaps. Is POT poorly managed, or is it outside forces driving down share price? Difficult economics within any organization often is an opportunity to streamline and does a merger encourage that path, then it can be a good thing.
      Perhaps another question, how do US policies influence or govern Canadian corps?

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