Agrium plans no new debt for Potash acquisition, future growth

By Devika Patel

Knoxville, Tenn., Sept. 20 – Agrium Inc. does not plan to take on debt for an acquisition of Potash Corp. of Saskatchewan Inc., nor does it plan to issue debt to finance the merged entity’s growth plans over the coming years, as the combined companies will have both strong cash flow and a strong balance sheet to handle the expected increased sales.

In fact, that’s the most attractive feature of the merger for Agrium’s leadership.

“Looking forward, the goal of growing retail by say another $400 million of EBITDA over the next several years, that would take Agrium somewhere around $3 billion of investment to deliver that sort of growth,” Agrium’s president and chief executive officer Chuck Magro said at the Scotiabank Fertilizers & Chemicals Conference 2016 in Toronto on Tuesday.

“Now we could issue equity or we could use the new company’s balance sheet and cash flow and finance it from that. And if you look at it, that is much more accretive to do in the new company than it is as an Agrium standalone.

“I see the strategic fit of this deal among many things but one of the most important things for me is I believe we’ll have the financial horsepower to accelerate retail growth when the market conditions will allow us, which is right now,” Magro said.

On Sept. 12, the companies agreed to a $36 billion all-stock merger of equals, based on each company’s net debt as of June 30, under which existing Potash Corp. shareholders will get 0.4 shares in the new company for every share held and Agrium shareholders would each receive 2.23 shares in the new company. Following the combination, Potash Corp. shareholders will own about 52% of the new company and Agrium shareholders will own approximately 48%.

The company will have $1 billion in excess cash flow, Potash Corp.'s president and chief executive officer Jochen Tilk noted at the conference.

Agrium is a Calgary, Alta.-based agriculture products retailer. Potash is a fertilizer and related industrial and feed products company based in Saskatoon, Sask. Combined, the companies will produce potash, nitrogen and phosphate. The new company will be the second-largest nitrogen producer in the United States and the third-largest nitrogen producer in the world.

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