Merger of Agrium and PotashCorp to create a global fertilizer giant

Agrium Inc. (TSX: AGU) (NYSE: AGU) and Potash Corporation of Saskatchewan Inc. (PotashCorp) (TSX: POT) (NYSE: POT) announced that they have agreed to combine in a merger of equals to create a world-class integrated global supplier of crop inputs.

Under the agreement, which the Boards of Directors of both companies unanimously approved, a new parent company will be formed to own both companies. PotashCorp shareholders will receive 0.400 common shares of the new company for each common share of PotashCorp they own, and Agrium shareholders will receive 2.230 common shares of the new company for each common share of Agrium they own. The exchange ratios represent the exchange ratios of the two companies at market close on the NYSE on August 29, 2016 the last trading day prior to when the companies announced that they were in preliminary discussions regarding a merger of equals, which is consistent with the approximate 10 day and 60 day volume weighted average prices through that date. Following the close of the transaction, PotashCorp shareholders will own approximately 52 percent of the new company, and Agrium shareholders will own approximately 48 percent on a fully diluted basis.

The new company, to be named prior to the transaction’s closing, combines low-cost, world-class potash and high-quality nitrogen and phosphate production assets with a premier agricultural retail network to forge an integrated crop inputs platform to better serve customers. The new company will be a leader in the fertilizer industry with close to 20,000 employees, operations and investments in 18 countries, and a pro forma enterprise value of US$36 billion, based on each company’s net debt as of June 30, 2016 and the current shares outstanding and respective closing share prices of the companies on the NYSE on August 29, 2016. On a 2015 pro forma basis, the new company would have had net revenue of approximately US$20.6 billion and EBITDA of US$4.7 billion before synergies.

PotashCorp President and Chief Executive Officer Jochen Tilk:

“Our merger creates a new premier Canadian-headquartered company that reflects our shared commitment to creating value and unlocking growth potential for shareholders.”

“The integrated platform established through our combination will greatly benefit customers and suppliers, and support even greater career development opportunities for employees.”

“Our workforce and the communities in which we operate are critical to both PotashCorp and Agrium, and we intend to carry forward best practices from both companies in corporate social responsibility, including commitments to employees, operating communities and the environment.”

Agrium President and Chief Executive Officer Chuck Magro:

“This is a transformational merger that creates benefits and growth opportunities that neither company could achieve alone.”

“Combining our complementary assets will enable us to serve our customers more efficiently, deliver significant operating synergies and improve our cash flows to provide capital returns and invest in growth.”

Strategic and Financial Benefits of the Merger

• Pre-eminent, low-cost producer of potash and high-quality nitrogen and phosphate: The new company will have a balanced nutrient portfolio that includes world-class potash production and complementary high-quality nitrogen and phosphate operations. It will have the lowest-cost potash production assets and reserves in North America, and a meaningful platform to benefit from continued growth in global potash demand. The merger also results in more diversified and complementary geographic and product portfolios in nitrogen and phosphate, with the North American nitrogen business expected to continue to benefit from low-cost feedstock and local distribution.


• Leading retail-distribution platform combined with two world-class nutrient production platforms: The new company will have a retail distribution platform encompassing crop nutrients and other input products, services, and solutions with operations in seven countries. The company will continue to emphasize innovation and growth in proprietary products, grower services, and distribution, with customers and suppliers benefiting from a broad agricultural solutions offering. The combined production footprint will drive freight savings and other operational efficiencies.


• Significant value creation from synergies: The combination is expected to generate up to US$500 million of annual operating synergies primarily from distribution and retail integration, production and SG&A optimization, and procurement. The synergies imply value creation for the combined enterprise of up to US$5 billion, or a 20 percent increase above the combined market capitalizations on August 29, 2016. The all-stock nature of the transaction allows all shareholders to participate in the benefits of the combination. The new company is expected to achieve approximately US$250 million of these synergies by the end of the first year after closing with the full run-rate achieved by the end of the second year. The transaction is expected to be accretive for both sets of shareholders with run-rate synergies.


• Compelling growth opportunities: Recently completed investments in new, low-cost capacity, particularly in potash, will improve the new company’s operating costs and position it well to respond to increases in demand. Continuing to grow the retail business will also be a priority, including roll-up opportunities, new store openings, and innovation in products and services to better serve growers.


• Strong balance sheet with significant cash flow generation: On a 2015 pro forma basis, inclusive of expected synergies, the new company would have had operating cash flow of over US$4 billion. With major capacity expansion projects essentially complete at each company, the new company’s low financial leverage, and significant cash flow generation, the combined company will have flexibility to return excess capital to shareholders and invest in growth initiatives, while also maintaining a strong investment grade credit rating profile. Both companies expect to maintain their existing dividend payments until the transaction is completed. Following the closing of the transaction, the new company will target a stable and growing dividend that reflects the strengthened cash flow profile of the combined company. Subject to market conditions and Board approval at the time of closing, the new company expects to establish a dividend payment equal to the current Agrium level, adjusted for the new share count.

Leadership and Communities

The new company will be led by a proven team that reflects the strengths and capabilities of both companies. Upon closing of the transaction, Jochen Tilk will serve as Executive Chairman, and Chuck Magro will serve as Chief Executive Officer, both reporting to the new Board of Directors. Wayne Brownlee will serve as Chief Financial Officer, and Steve Douglas will serve as Chief Integration Officer. Additional senior leadership positions for the new company will be named at a later date. The new company’s Board of Directors will have equal representation. The Board’s independent Lead Director will be designated by Agrium.

In addition to leading the Board of Directors, the Executive Chairman will have executive responsibility for the new company’s business strategy function.

Following the closing of the transaction, the new company will have its registered head office in Saskatoon, with Canadian corporate offices in both Calgary and Saskatoon.

In addition to maintaining a strong workforce in each of its operations, the new company will maintain its commitments to community involvement and investment.

Canpotex

The new company will remain committed to Canpotex, the global logistics and marketing company that provides efficient and cost-effective distribution to many of the world’s fastest growing potash markets.

Tax Treatment

Canadian taxable resident shareholders will be able to elect such that they receive shares in the new company free of Canadian income taxes, and other shareholders will generally not be subject to Canadian income tax. It is expected that U.S. resident shareholders will generally receive shares in the new company on a tax-deferred basis for U.S. federal income tax ‎purposes.

Timing and Approvals

The transaction will be implemented by way of a plan of arrangement under the Canada Business Corporations Act. It is expected to close during mid-2017, subject to the satisfaction of customary closing conditions, including receipt of regulatory approvals, Canadian court approval, and approval by the shareholders of both companies.

Advisors

Barclays Capital Inc. and CIBC Capital Markets are serving as financial advisors, and Blake, Cassels & Graydon LLP, Norton Rose Fulbright Canada LLP, Paul, Weiss, Rifkind, Wharton & Garrison LLP, and Latham & Watkins LLP are serving as legal advisors to Agrium.

BofA Merrill Lynch and RBC Capital Markets are serving as financial advisors, and Stikeman Elliott LLP and Jones Day are serving as legal advisors to PotashCorp.