Agrium Inc. (AGU)  

​Agrium Inc. and Potash Corp. Merge In a Deal of Equals


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Craig Adeyanju | FlashRatings | Monday, September 12, 2016 7:21 PM EDT
Agrium Inc (AGU). and Potash Corporation of Saskatchewan (POT) announced plans, on Monday, for the two Canadian fertilizer giants to merge.
The merger will give birth to a $27 billion-valued Potash-Agrium company. The name of the post-merger company hasn’t been revealed.

The announcement didn’t do much in swinging analysts into action in terms of trading.

While the two companies tagged the deal a merger of equals, which should mean that neither of the companies acquired the other, Potash shareholders will end up owning 52% of post-merger company, with Agrium  shareholders owning the rest of the company.

Potash CEO Jochen Tilk will assume the position of the chairman of the merged company, while Agrium’s CEO, Chuck Magro will become the CEO.

This merger is the latest of a sequence of mergers and acquisition in the struggling agricultural chemicals space over the past one year. The agrochemical industry has been finding it difficult to deal with low commodity prices and a weak demand profile.

Through the merger, Potash Corp. will have access to Agrium’s retail business that markets equipment, fertilizer and seeds directly to farmers in North America. On the other hand, Agrium will benefit from Potash’s production assets, according to Magro.

Due to the operation integration potentials of the merger, both companies expect to see up to $500 million in cost saving annually. In addition, the merger will see both companies control over 60 percent of North America’s potash production capacity – and about 25 percent on a global scale.

While the cost savings should help both companies improve profitability, with each company seeing its net income decline over the last five year, investors should take note that the focus should be more on improving revenue.

The declining net income over the last five years is a reflection of declining revenue and not increase in costs. On the contrary, both companies have been reducing their expenses, with both companies reducing total expenses by, at least 14 percent since the beginning of 2015.

So investors would be looking at how this deal influences the new company’s revenues.
 
Being a merger announcement, Wall Street analysts were not moved to update their ratings on either of the companies. Over the past 30 days, only two analysts have issued rating on each company. Consensus analyst opinion seems to be neutral on both companies.