Agrium, Potash Corp investors back merger of fertilizer companies

CALGARY, Alberta/WINNIPEG, Manitoba (Reuters) - Shareholders of Agrium Inc AGU.TO and Potash Corp of Saskatchewan Inc POT.TO overwhelmingly approved an all-stock merger of the fertilizer producers on Thursday, shifting the focus to U.S. and Canadian regulators.

President and CEO Chuck Magro of Agrium addresses shareholders during the company's annual general meeting in Calgary, Alberta, May 6, 2015. REUTERS/Todd Korol

More than 99 percent of Potash investors and 98 percent of Agrium shareholders voted in favor of the deal, the companies said at separate meetings in Saskatoon, Saskatchewan, and Calgary, Alberta, respectively. Reuters reported last month that shareholders were likely to give overwhelming backing for the deal.

The deal required two-thirds’ support of votes cast by each company’s investors to proceed.

Crop nutrient producers are struggling with falling prices and profits, as supplies are ample and farm incomes are strained by weaker crop values.

Potash sought to diversify with Agrium’s farm retail network, while Agrium management worked to address investor concerns that the deal exposed them further to low potash prices.

“The expectation (is) the combined entity will have greater leverage and upside participation in a potash price recovery,” said Brad Allen, director of Branav Shareholder Advisory Services, which advises companies on corporate governance issues. “It will take time to validate that optimism, and cost synergy rationales extolled in press releases are often not fully achieved.”

The companies agreed in September to merge into a new company, of which Potash investors would own 52 percent.

In North America, the merged company would control two-thirds of potash capacity and nearly one-third of phosphate and nitrogen capacity. The tie-up is expected to close in mid-2017, if it clears regulatory scrutiny.

The Canadian Competition Bureau is likely to rule that the companies’ operations do not meaningfully overlap, or will allow the merger based on an argument that efficiencies are greater than anti-competitive harm, said Mark Warner, principal at MAAW Law, which advises clients on antitrust issues.

U.S. regulators may be more rigorous, reflecting the next president’s likely tougher approach to competition concerns and with several other agricultural mergers proposed among seed and chemical companies, Warner said. The combination of Agrium’s farm retail business, North America’s largest, with Potash’s fertilizer capacity, may draw particular attention, he added.

“I think in the U.S. this will get a rougher ride.”

The deal carries a $485 million termination fee for either company, but it does not apply if a regulator requires a remedy, such as selling a potash mine.

Agrium shares dropped 1.2 percent and Potash stock eased 0.4 percent in New York.

Reporting by Nia Williams in Calgary and Rod Nickel in Winnipeg, Manitoba; additional reporting by John Tilak in Toronto; Editing by Andrew Hay and Dan Grebler