China Clears Agrium and PotashCorp Merger

The US has yet to approve the transaction.

agrium

China okayed the merger of Agrium (TSX:AGU,NYSE:AGU) and PotashCorp (TSX:POT,NYSE:POT) on Tuesday (November 7), taking the companies a step closer to forming a new firm.

Approval was given on the condition that the companies commit to divesting PotashCorp’s minority stakes in Arab Potash Company and SQM (NYSE:SQM) within 18 months of the deal closing; they must also divest PotashCorp’s minority interest in Israel Chemicals (NYSE:ICL) within nine months of that time.

In addition, China said PotashCorp must convert its equity interest in Sinofert Holdings (HKEX:0297) to a passive investment before the transaction goes through. PotashCorp must ensure that Canpotex remains a stable supplier of potash to China as well. 

PotashCorp and Agrium anticipate that the merger will close by the end of Q4 2017. The regulatory process is ongoing in the US, but Brazil, Canada, China, India and Russia have given the green light.

Agrium also announced Tuesday that it will sell its Conda phosphate and North Bend nitric acid operations to address US regulatory concerns regarding its merger with PotashCorp.

The firm signed a definitive purchase agreement to sell its Conda phosphate production facility and adjacent mineral rights to Itafos for $100 million, including working capital. Agrium entered into a similar agreement with Trammo Nitrogen Products to sell its Ohio-based nitric acid facility.

“The divestment of these assets will help pave the way for our merger with PotashCorp and the excellent line of sight to capture $500-million in annual synergies. With Itafos operating the SPA business and Trammo operating the nitric acid business, farmers and industrial customers will be served across the US for many years to come,” said Agrium President and CEO Chuck Magro.

As part of the Conda business sale, Agrium and Itafos will enter into long-term strategic supply and offtake agreements. Agrium will supply 100 percent of the ammonia to the Conda operation and will buy 100 percent of the monoammonium phosphate product produced.

Pricing formulas will be tied to benchmark phosphate fertilizer prices. Agrium expects to record a non-cash impairment of $178 million net of tax, due to the sale of Conda.

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Securities Disclosure: I, Melissa Shaw, hold no direct investment interest in any company mentioned in this article.

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