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PotashCorp drops its bid for competitor K+S
Oct. 6, 2015
PotashCorp
CanadaFollow
CanadaPotash Corporation of Saskatchewan Inc. has dropped its efforts to take over K+S AG for roughly $8.8 billion, derailed by a slump in commodity prices and the refusal of its German rival's management to engage in talks.
K+S said on Monday that it was informed of the withdrawal by Potash Corp.
Jochen Tilk, chief executive of Potash, said the continued pursuit of a combination is no longer in the best interests of his company's shareholders. "Our proposal [of EUR41 per share] reflected full and fair value, and was predicated on a collaborative process with access to customary due diligence," said Mr. Tilk in a statement.
Canada's Potash Corp. also said its offer would have benefited both companies and shareholders, adding that it had made "credible commitments to K+S's employees, unions and communities."
However K+S, which had repeatedly described Potash Corp.'s promises on jobs as "unreliable," responded to news of the withdrawal by repeating that the offer didn't reflect its fundamental value and threatened production in Germany.
"We are convinced that we can successfully develop our company based on a consistent implementation of our two-pillar strategy in the long term, " K+S Chief Executive Norbert Steiner said in a statement.
In a bid to break the stalemate, Potash Corp. suggested alternatives for the companies to work together to reduce freight costs and operate more efficiently. One possibility involved a swap deal in which Potash Corp. would export crop nutrients from its potash mine in eastern Canada to K+S customers, and K+S would do the same from its Legacy potash project in Saskatchewan, according to an Oct. 4 letter sent to K+S's supervisory board from Mr. Tilk.
"These concepts were also rejected without further consideration," Mr. Tilk said in the letter, a copy of which was seen by The Wall Street Journal.
A Potash Corp. spokesman declined to comment on the letter and a K+S representative couldn't immediately be reached.
Potash Corp. also declined to comment on its future plans. In a news release, the Canadian company said it would continue to focus on its growth strategy, but didn't elaborate.
The announcement of Potash Corp.'s withdrawal, which sent K+S's shares down 25% in afternoon trading on Monday, comes after a weekslong stalemate between the companies.
Management at K+S twice rebuffed advances from its would-be buyer this summer, saying the proposed offer undervalued the company. It also warned that a takeover could cost jobs, a flag that won management both labor and political support. Several German politicians vowed to work to thwart the deal altogether.
Over the past few weeks, Potash Corp. management came to the conclusion that an offer of EUR41 ($46) a share was no longer financially sensible after shares in the sector fell by roughly 40%, people familiar with the matter said on Monday. The offer represented a 59% premium on the K+S share price in the 12 months before the approach.
"With potash prices crashing week after week and global fertilizer/commodity share prices declining," BMO Capital Markets says, the bid "would've been difficult to continue for Potash Corp."
A combination of K+S and Potash would have been the largest mining deal since Glencore International PLC's takeover of Xstrata PLC for nearly $30 billion in February 2012. Both companies mine potash, a fertilizer, and a tie-up would have created a business with the potential to control up to 30% of the global market.
Global potash prices have been falling for most of the year amid worries over the global economy and weaker demand in major regions.
Analysts have said that the spot price for potash in South America, for example, has dropped to about $310 a metric ton from near $360 over the summer, and many don't expect a pickup in prices this year or next.
Despite the optimism from senior K+S executives, the collapse of the tie-up appears to leave the company in an especially difficult position.
An analyst poll conducted by industry research group Fertecon in late September showed that, given the recent changes in potash prices and the increasingly bearish midterm outlook, "most analysts--industry and financial--are pessimistic about K+S's future in the potash industry."
The Wall Street Journal reported late last month that large German K+S investors were increasingly frustrated over the company's refusal to engage in talks and saw risks of a massive share slump should Potash walk away from a bid.
At the time, Deutsche Bank Asset & Wealth Management, one of K+S's largest investors, expressed doubt about K+S's stand-alone strategy given shifts in global supply and demand.
Source: Dow Jones Newswires
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