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Agrium-PotashCorp Merger Terms Favor Agrium Shareholders

We don’t think the tie-up will have much effect on fertilizer prices.

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 Agrium (AGU)/(AGU) and  Potash Corporation of Saskatchewan (POT)/(POT) have announced a merger of equals, potentially creating the world’s largest crop nutrient company.

Given our stand-alone company fair value estimates--$20 per share for PotashCorp and $96 per share for Agrium--the deal terms (52% ownership of the combined company by PotashCorp shareholders) favor Agrium shareholders, in our view. Excluding synergies and using the announced share exchange ratio, our PotashCorp fair value estimate would fall about 10% and our Agrium fair value estimate would rise by a similar percentage. This is a function of our belief that PotashCorp is more undervalued than Agrium. Including our estimate of cost synergies, our PotashCorp fair value estimate remains $20 (CAD 26) and our Agrium fair value estimate jumps to $114 (CAD 149). We don’t think the merger will affect fertilizer pricing much, and our long-term pricing assumptions are unchanged.

Jeffrey Stafford does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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