K+S AG, the German potash supplier, is likely to reject a takeover offer from Canadian fertilizer producer Potash Corp. of Saskatchewan Inc. because it deems the bid to be too low, according to people familiar with the matter.
K+S is still evaluating the offer of more than 40 euros a share and no final decision has been made, said the people, who asked not to be identified because the talks are private.
The company jumped 38 percent to 40 euros as of 9:06 a.m., after closing at 29.05 euros on Thursday in Frankfurt, giving it a market value of 7.63 billion euros ($8.5 billion). It views the proposal as undervaluing the growth prospects of current projects and potential synergies, the people said.
“K+S is currently assessing the available options” after receiving a written proposal from Potash Corp., the German company said Thursday in a statement. Potash Corp. said separately it made a “friendly” takeover proposal and there’s no certainty it will make a firm offer. German newspaper Handelsblatt was first to report Potash Corp.’s interest.
Buying K+S would give Potash Corp. a greater presence in Europe through the German company’s potash and salt mines. It would also give the Saskatoon, Saskatchewan-based company control of the new Legacy potash project in Canada, which is scheduled to start production in the middle of next year and reach 2 million metric tons of capacity by the end of 2017.
Legacy will be the first new greenfield potash mine built in Saskatchewan in almost 40 years, according to Kassel-based K+S. Potash Corp. already has five potash mines in the Canadian province.
Shares of other potash producers also rose. Potash Corp. climbed 4.2 percent to C$39.33 in Toronto while Canada’s Agrium Inc. was up 2.3 percent. In the U.S., Mosaic Co. climbed 2.1 percent and Intrepid Potash Inc. gained 11 percent.
Buying its German rival would enable Potash Corp. to close some of K+S’s high-cost mines, P.J. Juvekar, a Citigroup Inc. analyst, said in a note. Doing that would would help cut some of the global potash oversupply.
Prices for the crop nutrient, which farmers use to strengthen root systems and protect against drought, have fallen since mid-2013. That’s when Russian producer PAO Uralkali quit a marketing joint venture with Belarus that controlled about 40 percent of global supplies.
K+S, Europe’s largest potash supplier, in May raised its forecast for full-year revenue after first-quarter earnings and sales exceeded analysts’ estimates amid higher prices for potash and salt.
The company’s smaller unit produces salt for de-icing as well as food-grade salt. The division was bolstered in 2009 by the purchase of Morton Salt for $1.68 billion.