K+S Shoots Down Proposed Acquisition by PotashCorp

The potash market saw some upheaval last week when Potash Corporation of Saskatchewan (TSX:POT,NYSE:POT) confirmed that it has made a friendly proposal to negotiate terms to acquire Germany’s K+S (FWB:SDF1). 
Investors reacted well to the news, with K+S’ share price rising an impressive 30 percent upon its release. However, it seems that K+S itself isn’t particularly happy with the proposal — the company put out a statement rejecting PotashCorp’s proposal on Thursday.
“The proposed transaction does not reflect the fundamental value of K+S and is not in the best interest of the company,” K+S notes in the release. PotashCorp’s plan was to acquire all of the outstanding shares of K+S for 41 euros each, which according to The Globe and Mail is equivalent to a total of US$8.7 billion.
Expanding on the problems K+S has with the proposal, CEO Norbert Steiner commented, “[n]ot only does this proposal undervalue our potash and magnesium products and our salt business, it completely disregards the value of our Legacy Project. The book value alone represents 11 Euro per share; considering future earnings we calculate a value of up to 21 Euro per share. This is not yet reflected in the share price.”
That said, K+S is not only worried about undervaluation. It also states that PotashCorp’s proposal “does not adequately consider the interests of employees worldwide or the interests of the regions in which the company operates responsibly.” More specifically, the company is unconvinced that PotashCorp plans to continue its fertilizer and salt businesses “in their current form.”
Based on statements from market watchers, K+S isn’t off track with that concern. As Bloomberg News points out, PotashCorp “has long preached the virtue of price stability,” and if it gains control of the Legacy project may look to slow its construction or limit its output in a bid to keep the potash price from dropping.
PotashCorp has not yet responded to the rejection, but those involved in the potash space will no doubt be watching closely for any word. The company has said that it may take its offer straight to K+S’ shareholders pending a more thorough examination of the company’s books, as per The Globe and Mail. For its part, K+S has not said what would constitute a suitable offer for the company.
If the two companies do eventually combine, the new entity would control 20 to 25 percent of global potash supply by 2020. The deal would also be the largest global potash merger since Uralkali (MCX:URKA) acquired Silvinit in 2011, and would make K+S the first German blue-chip stock to be bought by a foreign company in over a decade.
At 3:00 p.m. EST on Thursday, Potashcorp’s share price was up 0.67 percent, at $38.94, on the TSX, and down 0.58 percent, at $30.99, on the NYSE. For its part, K+S’ share price was flat at 18.32 euros on the FWB.
 
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article. 
Related reading: 
K+S Shares Up 30 Percent on PotashCorp Takeover Offer