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Canadian merger creates dominant firm in fertilizer industry

With the completion of their merger, two of Canada’s resource giants hold a dominant position in their industry.

The company formed by the country’s largest fertilizer firms stands to earn up to $3.7 billion in total earnings this year. It has also begun an active campaign of expansion with an acquisition in Brazil. This month, it will also pay its first dividend as a new company.

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NUTRIEN LTD. (Toronto symbol NTR; is the new firm formed by the merger of Agrium (old symbol AGU) and rival fertilizer producer Potash Corp. of Saskatchewan (old symbol POT).

On January 1, 2018, Potash Corp. shareholders received 0.40 shares in Nutrien for each POT share they held; Agrium investors received 2.23 shares for each AGU share. Potash Corp. investors now own 52% of the new company, and Agrium shareholders own the remaining 48%.

Nutrien has four divisions: Retail (36% of pro-forma 2017 earnings) sells seeds, fertilizers and agricultural products to farmers through 1,500 stores in North America, South America and Australia; Potash (33%) produces potash fertilizer from mines in Saskatchewan and New Brunswick; Nitrogen (24%) makes nitrogen-based fertilizers from natural gas at 14 facilities in Canada and the U.S; and Phosphate (7%) is North America’s second-largest producer of phosphate fertilizer.

To win regulatory approval for the merger, Nutrien will sell some of its investments in smaller fertilizer producers.

As part of that plan, the company sold its roughly 14% stake in Israel Chemicals Ltd. for $685 million (all amounts except share price and market cap in U.S. dollars). Nutrien plans more sales over the next few months, including its holdings in Arab Potash Co. and Chile-based SQM.

At the same time, the company is expanding to other regions. It agreed to acquire Brazilian fertilizer producer Agrichem. It will complete the purchase in two stages: 80% before the end of 2018, and the remaining 20% in 2019.

Nutrien has yet to reveal the purchase price. However, the new operations are profitable, and should add $55 million U.S. to the new company’s annual sales of $18 billion. As well, Nutrien can use Agrichem’s distribution networks to expand the availability of its other products in Brazil.

Mining Stocks: Savings from merger should reach $500 million in 2019

The merger has already let the new company cut $40 million from its annual costs since the start of 2018. Those savings mainly came from combining Agrium’s and Potash Corp.’s warehouses and distribution networks. The company expects those savings will rise to $500 million annually by the end of 2019.

Based on Agrium’s and Potash Corp’s balance sheets, the merged company’s long-term debt was $8.1 billion as of December 31, 2017. That’s a manageable 22% of its market cap. Nutrien also held cash of $582 million.

For all of 2018, the new company expects its gross earnings (before depreciation charges, interest payments and taxes) will range from $3.2 billion to $3.7 billion. It should also earn between $2.10 and $2.60 a share. The stock trades at 25.1 times the midpoint of that range.

Nutrien will begin paying a regular quarterly dividend of $0.40 U.S. a share on April 20, 2018. An annual rate of $1.60 U.S. yields 3.2%.

That rate is roughly 27% higher than the combined payouts of Agrium and Potash Corp. Nutrien also plans to buy back up to 5% of its outstanding shares over the next year.

Recommendation in The Successful Investor: Nutrien is a buy.

For our recent report on a Canadian stock that’s a leader in mining services, read Canadian stock has answer for tough mining problems.

For our views on making the best of your investments in resource stocks, read How to Invest in Commodities: Guidelines for Making Smart Decisions.


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