Cleveland Research Says Initial U.S. Dealers Having Mixed Reaction To Agrium-Potash Deal

Cleveland Research’s Mike Piken mentioned that the reaction of U.S. dealers to the proposed merger between Agrium Inc. (USA) AGU and Potash Corporation of Saskatchewan (USA) POT has been mixed, although most dealers expect the merger to be approved by the anti-trust authorities.

Piken maintained a Neutral rating on both companies.

Impact Of The Merger

“Some dealers felt Agrium may have been better served to wait for some of the incremental potash and nitrogen capacity to come on-line before agreeing to a merger,” the analyst stated.

Related Link: Pro: Potash-Agrium Merger Might Not Be Great News For Farmers

These dealers also believed that Potash might benefit from selling more potash through Agrium’s retail channels, while also benefiting from selling more of its nitrogen to agricultural markets, following the Yara/BASF nitrogen complex coming on line in 2017.

“Given our bearish assessment of the global supply/demand outlook for potash over the next several years and the current crop pricing environment, our view is that Agrium may have been better served to wait for a more opportune time to make the deal,” Piken said.

Purchase Decisions & Pricing

However, the analyst agreed with a majority view that the merger was likely to drive more disciplined output levels from Canadian potash manufacturers in future.

In addition, a majority of the dealers felt that the Agrium-Potash merger was unlikely to affect which manufacturers the dealers purchased fertilizer from in the fall of 2016, since most of the buying had already taken place, but would adopt a “wait and see” approach in future.

“Some retailers’ biggest concern is if Agrium retail division (CPS) eventually gets better pricing from the Wholesale division of the new company it could impact those retailers ability to compete. We believe if this scenario were to occur, it may cause some of them to explore switching to other suppliers,” Piken pointed out.

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