Potash Corp. Withdraws Bid to Acquire K+S as Markets Tumble

  • Germany's K+S rejected the 41 euro-per-share offer as too low
  • Canada's Potash cites market decline, lack of K+S engagement

Potash Corp. of Saskatchewan withdrew its 7.85 billion-euro ($8.8 billion) proposal to acquire Germany’s K+S AG amid a decline in global commodity and equity markets.

Potash Corp.’s cash offer had been rejected in July by K+S AG of Germany as too low. Since then, spot prices for potash in the U.S. have dropped while the Bloomberg Commodity Index of 22 raw materials is down 16 percent from its peak this year in May.

“Challenging macroeconomic conditions have contributed to a significant decline of global commodity and equity markets,” Saskatoon, Saskatchewan-based Potash Corp. said in a statement Oct. 4. “In light of these market conditions and a lack of engagement by K+S management, we have concluded that continued pursuit of a combination is no longer in the best interests of our shareholders.”

Potash Corp.’s proposal was always predicated on it being a friendly bid, so the lack of substantive discussions with K+S management led it to walk away, according to a person with knowledge of the matter. The Canadian firm sent a letter to K+S’s board on Oct. 4 saying it would drop the offer, the person said, asking not to be identified as the information is private.

A September raid on K+S premises and private homes in Germany, part of a probe into alleged illegal debris disposal, also highlighted for Potash Corp. the risks of pursuing a hostile offer without the benefit of added due diligence, the person said. K+S has said it’s fully cooperating with authorities on the probe.

A representative for Potash Corp. declined to comment beyond its statement.

Potash Corp. had offered 41 euros per K+S share, the Canadian company said in the statement. The German company’s shares have risen almost 10 percent since the proposal was publicly confirmed in late June. The stock closed at 31.343 euros on Friday.

Legacy Project

A successful bid for K+S would have given Potash Corp. mine capacity in Germany as well as control of the Legacy project, a new mine being built in Saskatchewan. The bidding was being watched closely by the industry because a takeover would mean the largest North American potash supplier would end up with an even greater slice of a market that’s cursed with excess capacity.

The new Legacy potash project in Canada is scheduled to start production by the end of next year and reach 2 million metric tons of capacity from 2017 onwards. K+S has invested more than 2 billion euros in the project and predicts the company’s earnings before interest, taxes, depreciation and amortization will rise to 1.6 billion euros by 2020, with Legacy contributing an average annual operating cash flow growth of more than 10 percent.

The proposed offer didn’t reflect the value of K+S and was not in the best interest of the company, the Kassel-based potash supplier said in a statement in July when it rejected the offer.

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.

(An earlier version of this story was corrected to remove an erroneous offer date in the second paragraph.)

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