The Battle For PotashCorp
October 4, 2010 The latest fertilizer company in a hostile takeover fight is supply giant Potash Corp. of Saskatchewan (PotashCorp). Earlier this year, the Canadian company became an acquisition target of Australian mining giant BHP Billiton Ltd., which proposed a $40 billion buyout. PotashCorp’s board of directors rejected this bid as “too low.” Now, it appears that the eventual ownership of the company will come down to a showdown between BHP and Sinochem Group of China, with a resolution expected within the next year or so.
Given fertilizer’s place in the agricultural world, this all makes sense. Based upon numbers from the annual CropLife 100 retailer survey, fertilizer averages approximately 50% of all crop input sales in a calendar year for dealerships. Yet, high production costs, coupled with wildly fluctuating prices, have made margins for suppliers difficult to maintain. This naturally leads to efforts to consolidate companies and enhance profitability.
During 2008 and 2009, the ongoing fertilizer consolidation saga saw Agrium attempting to acquire CF Industries. On the other hand, CF was in the process of bidding on Terra Industries. In the end, CF was successful, removing a long-standing fertilizer supplier from the market in the process.
From the ag retail side of the equation, such supplier consolidation is troubling, limiting competition and potentially raising prices. Comments posted on CropLife.com regarding the battle for PotashCorp reflect this. “Continued consolidation of the fertilizer industry is alarming and becoming very disruptive to the agriculture sector in North America,” wrote one respondent. “I believe that PotashCorp needs to remain an independent corporation, free of outside vested interests.”
Another advocated legislative action to keep PotashCorp from being acquired. “The Canadian Government needs to step in and say that a natural resource as important as potash must remain in the hands of the Canadians,” wrote the respondent.
Whether this happens or not remains to be seen. However, I would expect the pace of supplier consolidation in the fertilizer market to continue over the next few years. In my opinion, there’s too much money at stake for it not to . . .
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