German potash supplier K+S AG gained as much as 39 percent in Frankfurt trading following a $8.6 billion-plus takeover offer from Canadian fertilizer producer Potash Corp. of Saskatchewan Inc.
The Canadian rival said in a statement on Thursday that it made a “friendly” takeover proposal to K+S. The German company is likely to reject the offer of more than 40 euros a share as it deems the bid to be too low, according to people familiar with the matter.
“It’s a low-ball offer,” said Christian Faitz, an analyst at Kepler Cheuvreux, who rates the stock buy. “Management should think twice before recommending it to shareholders.”
K+S gained as much as 11.24 euros to 40.29 euros, the most since at least 1998, giving it a market value of 7.6 billion euros ($8.6 billion). Before today, the stock had gained 27 percent since the start of the year, beating the 17 percent rise of Germany’s DAX index.
Buying Kassel-based 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 mine 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.
“It highlights the attractiveness of K+S’s portfolio,” Kepler’s Faitz said. “Potash Corp. is interested in the technological set up and having an interesting future mining asset in Canada under their control. The salt business is a nice add on, which I think they would keep.”
K+S is the most shorted stock in the Stoxx Europe 600 chemicals index. Short interest in the company was 10.3 percent of shares outstanding as of June 24, according to data from Markit.
Shares of other potash producers also rose. Potash Corp. on Thursday climbed 4.2 percent to C$39.33 in Toronto while Canada’s Agrium Inc. added 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 help cut some of the global potash oversupply.
Prices for the crop nutrient, which farmers use to strengthen root systems and protect against drought, haven’t recovered from a plunge in mid-2013. That’s when Russian producer PAO Uralkali quit a marketing joint venture with Belarus that controlled about 40 percent of global supplies.