Potash Corp. of Saskatchewan Inc., the world’s second-largest producer of its namesake fertilizer, and Agrium Inc. are in talks about a merger of equals as they battle falling prices and a decline in spending from farmers. The talks are preliminary and there’s no assurance that any transaction will be agreed on, both Canadian companies said in separate statements Tuesday, confirming an earlier story by Bloomberg News about the potential combination. A deal could be announced as soon as next week, said people familiar with the matter, who asked not to be identified because the deliberations are private. Potash has a market capitalization of about $14.6 billion while Agrium is valued at about $13.2 billion. Potash surged as much as 15 percent in New York, and Agrium jumped 12 percent before trading of the companies was halted. Other fertilizer producers, including Intrepid Potash Inc. and CF Industries Holdings Inc., also jumped.
The potential deal comes as fertilizer companies struggle with depressed crop prices, which have pressured spending by farmers. Over the past year, spot potash-prices in the U.S. corn belt have fallen 34 percent and other crop nutrients have also gotten cheaper. Potash buyers in India and China have delayed signing contracts for supplies, damping demand. Both companies have struggled to improve earnings amid weak markets and the potential deal is probably a move to generate growth and cut costs, said Colin Isaac, an analyst with Atlantic Equities in London. “People will use this as evidence we’re at the bottom of the cycle,” Isaac said in a telephone interview. “It’s probably more about synergies and generating some growth.” Potash Corp. abandoned a plan to take over German rival K S AG last year after its efforts were rebuffed by management amid regulatory concerns, and after the drop in potash prices prompted the Canadian company to rethink the economics of the deal. Potash Corp. cut its dividend in July for the second time this year and lowered its full-year profit forecast. Agrium cut its full-year profit forecast this month for the second time in 2016 amid falling nutrient prices. The potential merger is the latest in a string of mega deals in the agricultural chemical market. Negotiations between Bayer AG and Monsanto Co. are advancing after the German company’s $55 billion takeover bid. China National Chemical Corp. agreed in February to acquire Swiss pesticide maker Syngenta AG for about $43 billion, while DuPont Co. and Dow Chemical Co. plan to merge and then carve out a new crop-science unit.