Update – Potash Corp and Agrium Proposed Deal Doesn’t Really Make Sense, Says Analyst (TSE:POT)


Mark Connelly, an analyst at CLSA, told Canada’s BNN TV the proposed deal that could see Potash Corp (POT.TO) buy its rival Agrium (AGU.TO) doesn’t really make sense. The two parties confirmed recently that they were in talks about a possible transaction. “It is simple maths. Agrium has a big chunk of its business that is not fertilizer, so then in a downturn the stock holds up. A commodity company – as we know here in Canada – goes straight down.

So this is the wrong time for Potash Corp to be thinking about doing any sort of transaction. They don’t have any currency in their stock and there really isn’t a whole lot of business logic in the combination.” Connelly, when asked if the proposed deal would give the combined companies more leverage to control supply and demand in the market, said in theory the M&A transaction would raise profits and eliminate competition. But, he added, Potash Corp is so big in the potash market compared to Agrium that a combination wouldn’t make that much of a difference. Connelly said the Potash Corp CEO appears to be under pressure to find the answer to a problem that he inherited – the rise in demand that was expected five years ago hasn’t come about. He noted Potash Corp – which is big enough to have a major say in supply and demand in North America – bet that increased demand would come early, “and it lost.” According to Connelly, POT might be trying to do something different in doing a deal with Agrium, but he said there are not a whole lot of potential synergies in it.

The stock decreased 2.57% or $0.56 on September 13, hitting $21.27. About 5.68 million shares traded hands or 105.05% up from the average. Potash Corporation of Saskatchewan Inc (TSE:POT) has declined 6.19% since February 5, 2016 and is downtrending. It has underperformed by 22.68% the S&P500.

Potash Corporation of Saskatchewan Inc. is a fertilizer producer producing various primary crop nutrients, such as potash, nitrogen and phosphate. The company has a market cap of $17.60 billion. The Firm operates through three divisions: potash, nitrogen and phosphate. It has a 20.13 P/E ratio. It owns and operates approximately five potash activities in Saskatchewan and one in New Brunswick.

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