K+S AG, the German potash supplier, plans to reject an $8.6 billion-plus 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.
The German company is preparing to announce its opposition to the bid as early as today, said the people, who asked not to be identified because the matter is private. A representative for K+S declined to comment.
Potash Corp. plans to analyze K+S’s response and reasoning before deciding on its next move, according to two people familiar with the matter. The Canadian firm still sees the industrial logic for the deal and an opportunity to reach an agreement, they said.
Saskatoon, Saskatchewan-based Potash Corp. said on June 25 that it made a “friendly” takeover bid. The proposed price was more than 40 euros a share, people familiar with the matter said at the time, prompting shares of Kassel-based K+S AG to gain as much as 39 percent. Today, the stock dropped as much as 2.3 percent.
Buying K+S would give Potash Corp. the means to control output from 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. Analysts have said a deal could allow the Canadian company to cut excess capacity and support prices, which have fallen amid rising output.
Potash Corp. has long preached the virtue of price stability and has questioned plans by rival producers such as BHP Billiton Ltd. to build new mines. By proposing a takeover, Potash Corp. might be looking for a way to slow construction of K+S’s Legacy mine, according to P.J. Juvekar, a Citigroup Inc. analyst. The deal would also hand the Canadian company an ageing and costly potash mine in Germany.
Potash supply is highly consolidated, with the top three producers controlling more than half of world shipments. 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.
K+S dropped as much as 87.5 cents to 36.90 euros in Frankfurt and was down 1.5 percent as of 2:42 p.m., valuing the company at 7.1 billion euros ($7.9 billion). Before the bid was unveiled, the stock had gained 27 percent since the start of the year, beating the 17 percent rise of Germany’s DAX index.