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 which could take these two hot penny stocks and turn them into a powerhouse.
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.
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.
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.