Business

Potash Corp., Agrium in merger talks

Saskatoon-based Potash Corp. of Saskatchewan and Agrium Inc. of Calgary have confirmed they are in merger talks, a combination could produce a fertilizer giant worth more than $30 billion.

Shares of both companies jump on news of possible $30B merger

A glut of potash on the world market has caused prices to plunge and led to layoffs and mine closures across the industry. (Sergei Karpukhin/Reuters)

Saskatoon-based Potash Corp. of Saskatchewan and Agrium Inc. of Calgary have confirmed they are in merger talks — a combination could produce a fertilizer giant worth more than $30 billion. 

Both companies said in nearly identical statements that they are in "preliminary discussions" about "a potential merger of equals.

"No decision has been made as to whether to proceed with such a combination, no agreement has been reached, and there can be no assurance that any transaction will result from these discussions," the companies said Tuesday.

Bloomberg News, citing unnamed sources, first reported Tuesday that the merger could be announced as early as next week.

Both stocks soared on news of the merger talks. Trading in both was subsequently halted at 9:58 a.m. ET on the Toronto Stock Exchange. The shares were also halted on the New York Stock Exchange.

Trading resumed at noon ET. Potash Corp. shares ended the trading day up $2.40 at $23.31 on the TSX — a jump of 11.5 per cent.

Shares in Agrium rose $8.56 on the day and closed at $125.09, a gain of 7.4 per cent.

Market oversupplied

A glut of potash on the world market has caused prices to plunge and has led to layoffs and mine closures across the industry. Demand for the fertilizer has also been weak in some markets.

Potash prices have dropped by up to a third in the past year. Potash Corp, said its averaged realized price in the second quarter this year had tumbled to multi-year lows of $154 US per tonne. Potash prices peaked eight years ago at about $900 US a tonne. 

"I think [a merger] will make them a better force to compete on a global scale," Mohsin Bashir, portfolio manager at Stone Asset Management Ltd, told Reuters. But Bashir said regulatory approval for such a merger might be difficult to get.

Potash Corp., which is the third-biggest seller of potash in the world, has a market capitalization of about $17.5 billion Cdn.

Agrium's market capitalization is $16.1 billion. Unlike Potash Corp, Agrium has a chain of retail stores in the U.S., so a merger could give Potash Corp direct access to American farmers.

Minnesota-based Mosaic Co. cut 330 jobs in July when it suspended production at its potash mine near Colonsay, Sask.

Earlier this year, Potash Corp. suspended production at its Picadilly mine operation near Sussex, N.B., resulting in the loss of more than 400 jobs.  

With files from The Canadian Press