Potash Corp, Agrium talk merger; competition scrutiny expected

Tue Aug 30, 2016 4:00pm EDT
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By Rod Nickel and Diane Bartz

WINNIPEG, Manitoba/WASHINGTON (Reuters) - Canada's Agrium Inc (AGU.TO: Quote) and Potash Corp of Saskatchewan Inc (POT.TO: Quote) said on Tuesday they are in talks to merge, a deal that would create a fertilizer and farm retailing giant worth more than $25 billion but also trigger U.S. regulatory scrutiny.

Potash Corp (POT.N: Quote), the world's biggest crop nutrient company by capacity and Agrium (AGU.N: Quote), North America's largest farm retailer, said in separate statements that the talks were at a "preliminary" stage about a possible merger of equals, adding that no agreement has been reached.

U.S.-listed shares of Potash and Agrium rocketed up 11 and 7 percent respectively.

The deal would be the latest in a string of agriculture merger attempts, including potential combinations of seed giants Monsanto Co (MON.N: Quote) and Bayer AG (BAYGn.DE: Quote), and ChemChina [CNNCC.UL] and Syngenta (SYNN.S: Quote).

Fertilizer companies have suffered lower profits as crop nutrient prices tumbled due to excessive supply and weak demand. Crop prices have also hurt, with corn Cv1 and wheat Wc1 at seven-year and 10-year lows respectively, giving farmers less incentive to maximize production with fertilizer.

For Potash, it would be a chance to grow without a foreign takeover, a politically sensitive point in Canada. In 2010, Ottawa blocked a takeover bid for Potash by Anglo-Australian miner BHP Billiton Ltd (BHP.AX: Quote)(BLT.L: Quote), after political opposition from Potash Corp's home province Saskatchewan.

A merger would give Potash a direct channel to U.S. farmers through Agrium's retail stores, which as of May accounted for 17 percent of the U.S. market. Industry watchers said this and other factors would catch the attention of U.S. regulators.

“I can't predict what they (U.S. and Canadian regulators) would do but this one would come under intense scrutiny,” said Bob Taylor, an economist and professor emeritus at Auburn University’s College of Agriculture.   Continued...

President and CEO Chuck Magro of Agrium addresses shareholders during the company's annual general meeting in Calgary, Alberta, May 6, 2015. REUTERS/Todd Korol