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Should PotashCorp Buy K+S?

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Potash Corp./Saskatchewan (USA) (NYSE: POT) has submitted a proposal to acquire all outstanding shares of K+S (SWX: SDF).

In a report published Friday, BMO Capital Markets analyst Joel Jackson mentioned that the acquisition was unlikely, since regulatory approval was likely to be "too challenging," given that a POT/K+S tie-up may be judged as "anti-competitive."

"The premium (perhaps 45%) will prove difficult for K+S to walk away from, and we believe K+S has been shopping for suitors for some time," Jackson wrote, while adding that the deal does not make strategic sense for POT, in view of the "nature of K+S's higher-cost potash mines with relatively low mine lives."

BMO Capital Markets maintained a Market Perform rating on PotashCorp, with a price target of $35.

In another report, JPMorgan analyst Ben Scarlett said that anti-trust is "unlikely to be a serious issue in the conventional sense."

Scarlett added, however, that "the impact of any prospective mine closures in Germany may attract government employment review, and anti-competition authorities would be unlikely to allow K+S's German assets to effectively form part of the Canpotex cartel without substantial concessions which are unclear to us at this time."

Scarlett estimates the full acquisition of K+S at €8-€9bn, net of a disposal of the company's Salt assets, which is estimated to yield around €2.5bn. "The possible impact on the potash markets of this acquisition is likely to be mixed, and not universally positive," the report added.

Scarlett believes that the potential deal with PotashCorp would add value for K+S's shareholders, "especially in the context of an industry in which the medium term dynamics are increasingly uncertain, with competition increasing and global potash utilization rates likely to fall."

JPMorgan maintained an Overweight rating on K+S, with a price target of €38.

Latest Ratings for POT

Dec 2017Stephens & Co.Initiates Coverage OnOverweight
Oct 2017UBSMaintainsBuy
Oct 2017HSBCInitiates Coverage OnBuy

View More Analyst Ratings for POT
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Posted-In: BMO Capital Markets JPMorganAnalyst Color Reiteration Analyst Ratings


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