North America Giant Fertilizer Merger

Fertilizer prices have been falling in the recent years causing an erosion in the fundamentals of the industry, to which is has responded consolidating.

PotashCorp (POT) and Agrium (AGU) announced a merger of equals expected to be completed by the middle of 2017 that would create the world’s largest crop-nutrient supplier with a market value of about $26 billion. For an understanding of the significance of this new enterprise compare with the market capitalization of Mosaic (MOS) of $8.9 billion or CF Industries (CF) of $5.6 billion.

 

pcs

PotashCorp Allan Potash Operations

 

This is a deal of giants. PotashCorp is the largest world fertilizer company by nutrient capacity (14.2 million tonnes p.a.) and they are a low-cost potash producer (in the recent quarter they outflanked competition with the lowest cost per ton at $127 of potash produced). Agrium is a leading global producer and marketer of agricultural nutrients with a 4% of the global production capacity of potash, a 2% of ammonia, a 1% of urea, and 1% of phosphate. Agrium’s retail unit buys 10 million tons of fertilizer annually. The combined company would control the majority of North America’s potash production and more than 30 percent of North American nitrogen and phosphate production.

 

agrium

Agrium Vanscoy Potash Operations

 

The new company will be a leader in the fertilizer industry with close to 20,000 employees and operations and investments in 18 countries. PotashCorp shareholders will own 52% of new company.

The merger will result in low regional market overlap as the majority of PotashCorp fertilizer assets are in the eastern half of the U.S., Agrium’s nitrogen and phosphate assets are concentrated in western North America.  It is expected to generate up to US$500 million of annual operating synergies mainly from distribution and retail integration, production and SG&A optimization, and procurement.

The merger of the world’s largest fertilizer producer with the world’s largest ag-retailer is drawing the attention of the regulators and farmer groups.

Fertilizer Consumption Snapshot

00

 

01

 

02

 

03

 

04

 

05