Deals

Brooke Sutherland is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

Potash Corp. may have finally found a deal it can get across the finish line.

The $15 billion fertilizer maker is in talks with rival Agrium about a merger of equals. The Canadian companies said their discussions are preliminary, but people familiar with the matter told Bloomberg News that a combination could be announced as soon as next week. If a transaction were to happen between these two leaders in agricultural chemicals, it would cap an M&A history that's been littered with failures.

There was the time BHP Billiton made a $40 billion hostile takeover offer for Potash in 2010, only to have its bid blocked by the Canadian government. Potash then tried to buy Israel Chemicals, but that transaction fell apart in 2013 amid opposition from the Israeli government. And last year, Potash pursued German supplier K+S AG, but its overtures were rejected as too low and politicians were again raising concerns. For Agrium's part, it was forced to give up on a year-long quest to buy CF Industries in 2010 when the target company insisted on pursuing its own acquisition instead.

There's reason to think this time could be different. For one, both Agrium and Potash have incentive to negotiate with each other. Both companies have struggled of late as the drop in commodities prices has damped demand for crop nutrients. Just this month, Agrium had to cut its 2016 profit forecast for the second time in as many quarters. Potash had to lower its earnings projections as well and slashed its dividend twice this year after a more than quarter-century streak of avoiding cuts. 

Here's what the companies' stock prices have done this year:

In Need of Fertilizer
Potash shares have tumbled as the decline in commodity prices pressured results.
Source: Bloomberg
Me Too
... and so have Agrium's.
Source: Bloomberg

And here's what their revenue outlook looks like:

Stunted Growth
Sales are expected to rebound at Potash in 2017 after years of declines, but neither company is on the fast track to growth.
Source: Bloomberg

It's easy to see the appeal of cost synergies and acquisition-fueled growth. Everyone else in the agricultural chemical industry is doing it. (See Bayer's pursuit of Monsanto, ChemChina's $46 billion takeover of Syngenta and Dow and DuPont's mega-merger.) It's not clear yet how Agrium and Potash plan to structure a deal, but an all-stock transaction would allow shareholders of both companies to benefit from a rebound in the agricultural markets and share in whatever value the companies can create from a combination.  

From a regulatory perspective, the companies are based in the same country so they don't have to worry about battling the nationalist tendencies that have doomed other potential tie-ups in the industry. It's still a large transaction that would create a crop-treatment giant so there may be anti-trust hurdles, but an intra-country combination seems like an easier sell. This could be one fertilizer merger that has a chance of taking root.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Brooke Sutherland in New York at bsutherland7@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net