Potash Corp & Agrium Merger Gets Regulatory Nod In Canada

Potash Corporation of Saskatchewan Inc. (NYSE:POT) and Agrium Inc. (NYSE:AGU) announced that they have been granted unconditional regulatory approval for their proposed merger of equals from the Canadian Competition Bureau (CCB), which issued a no-action letter dated Sep 11.

According to CCB, the proposed merger is unlikely to considerably lessen or prevent competition with respect to phosphate fertilizers, potash fertilizer and nitric acid. It has also found that global potash prices are correlated with the prices in Canada, and customers can source potash from multiple suppliers. The issuance of no-action letter satisfies the necessary closing conditions of the Canadian regulatory authorities in regards to the aforesaid transaction.

Both companies have previously obtained unconditional clearance for the merger in Russia and Brazil. At present, approval and regulatory review process is underway in the United States, China and India. The companies now expect the transaction to close by the end of fourth-quarter 2017, which was previously expected to be completed in the third quarter.

On Jun 21, Potash Corp. and Agrium announced that once their proposed merger transaction completes, the combined entity will be called Nutrien. It will play a critical role in "Feeding the Future" initiative, by acting as the largest global provider of crop services and inputs and help growers to increase sustainable food production.

Shares of Potash Corp.have moved up 8.3% in the last three months, modestly underperforming the industry’s 8.8% growth.

Potash Corp., in second-quarter 2017 earnings call, announced that it expects full-year 2017 earnings in the range of 45-65 cents per share that includes merger related charges of 6 cents. The company has revised total potash sales volume guidance and now expects sales in the range of 9-9.4 million tons (up from 8.9-9.4 million tons) in 2017. It projects potash gross margin of $650-$850 million for the year and combined gross margin for nitrogen and phosphate in the band of $150-$300 million for 2017.

The company witnessed a healthy demand for potash in the second quarter and expects consistent customer engagement through the remainder of 2017, supported by healthy consumption trends. The company expects strong consumption in China in the second half of 2017 driven by higher crop acreage and nutrient affordability.

However, Potash Corp. remains exposed to a weak pricing environment. The company saw lower pricing across its nitrogen and phosphate businesses in the last quarter. Challenging market fundamentals and weak pricing continue to hurt profitability in the company’s phosphate business which is expected to persist for the rest of the year. Nitrogen pricing environment is also expected to remain challenging through the balance of 2017 as the global markets continue to adapt to considerable capacity increase.

Zacks Rank & Stocks to Consider

Potash Corp.currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials space are Kronos Worldwide Inc. (NYSE:KRO) and Smurfit Kappa Group plc (OTC:SMFKY) . Both stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Kronos Worldwide has an expected long-term earnings growth rate of 5%.

Smurfit Kappahas an expected long-term earnings growth rate of 4%.

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