Agrium and Potash Corp. expect to complete their merger in the next few months. Potash Corp. investors will receive 0.40 of a share in the combined company (called Nutrien) for each POT share they hold; Agrium investors will receive 2.23 shares for each of their AGU shares. As a group, Potash Corp. shareholders will then own 52% of the new firm, with Agrium investors holding 48%.
Fertilizer prices will likely remain depressed for the next few years, so the merger will help Nutrien compete with larger producers. The elimination of overlapping operations will also cut $500 million U.S. from the new firm’s annual costs. That will help it pay down debt and maintain its high dividend.
We like both Agrium and Potash Corp., but Agrium is the better choice for new buying. If the merger falls through, steady sales from its stores should continue to shield it from volatile fertilizer prices.
AGRIUM INC. $121 (Toronto symbol AGU; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 138.2 million; Market cap: $16.7 billion; Price-to-sales ratio: 1.2; Dividend yield: 3.7%; TSINetwork Rating: Average; www.agrium.com) is the world’s largest crop-nutrient company. It sells seeds, fertilizers and agricultural products to farmers through 1,500 stores in North and South America, and Australia. In 2016, those outlets supplied 59% of its earnings.
The remaining 41% of Agrium’s earnings are from its production of fertilizers—both nitrogen- and phosphate-based. The company also mines potash for use as a potassium-based, water soluble fertilizer.
