Canadian leading fertilizer companies Agrium Inc. (TSX/NYSE: AGU) based in Calgary, Alberta, and PotashCorp (TSX/NYSE: POT) based in Saskatoon, Saskatchewan, agreed to combine in a merger of equals at an enterprise value of $36 billion, creating a global leader in the fertilizer industry. PotashCorp shareholders will own 52 percent of the new company and Agrium shareholders will own 48 percent.
The new company, to be named prior to closing, combines potash, nitrogen and phosphate production assets with a premier agricultural retail network, and 20,000 employees operating in 18 countries.
PotashCorp president and chief executive Jochen Tilk said, “Our merger creates a new premier Canadian-headquartered company that reflects our shared commitment to creating value and unlocking growth potential for shareholders.”
Agrium president and chief executive Chuck Magro said, “This is a transformational merger that creates benefits and growth opportunities that neither company could achieve alone.”
Upon closing, Tilk will serve as executive chairman, and Magro will serve as CEO.
PotashCorp shareholders will receive 0.400 common shares of the new company for each common share of PotashCorp they own, and Agrium shareholders will receive 2.230 common shares of the new company for each common share of Agrium they own. The exchange ratios represent the ratios of the two companies at market close on the NYSE on August 29, 2016, the last trading day prior to the announcement that they were in preliminary merger discussions.
The combination is expected to generate up to $500 million of annual operating synergies, which imply value creation of up to $5 billion, or a 20 percent increase above the combined market capitalizations on August 29, 2016. The new company is expected to achieve $250 million of these synergies by the end of the first year with the full run-rate achieved by the end of the second year. On a 2015 pro forma basis the new company would have had net revenue of $20.6 billion, EBITDA of $4.7 billion and operating cash flow of over $4 billion.
The deal is expected to close during mid-2017, subject to customary closing conditions, including regulatory approvals, Canadian court approval, and approval by the shareholders of both companies.
Barclays Capital Inc. and CIBC Capital Markets are serving as financial advisors, and Blake, Cassels & Graydon LLP, Norton Rose Fulbright Canada LLP, Paul, Weiss, Rifkind, Wharton & Garrison LLP, and Latham & Watkins LLP are serving as legal advisors to Agrium.
BofA Merrill Lynch and RBC Capital Markets are serving as financial advisors, and Stikeman Elliott LLP and Jones Day are serving as legal advisors to PotashCorp.
Morgan Stanley & Co. LLC is serving as joint financial advisor to Agrium and PotashCorp.