Potash Agrees to Buy Arcadian For $1.18 Billion in Cash, Stock
May 16, 2011
Canadian fertilizer giant Potash Corp. of Saskatchewan has signed a definitive agreement to acquire rival Arcadian Corp. for $1.18 billion in cash and stock, scotching Freeport-McMoRan Inc.'s planned acquisition of Arcadian. Company officials announced the deal Monday evening and said talks between Arcadian and Freeport had been terminated. The combination of Potash and Arcadian will create the world's largest integrated producer and marketer of the three nutrients that plants need to survive, with combined revenue of $2.2 billion. Arcadian, based in Memphis, Tenn., is North America's top producer of nitrogen fertilizer. Potash, based in Saskatoon, is the world's leading producer of phosphate and potassium-based fertilizers. The Potash deal tops last month's Freeport offer for Arcadian of $1.06 billion in stock, a price many Arcadian investors complained was too low. In fact, Freeport's acquisition price of $23.36 an Arcadian share wasn't guaranteed and could have fallen once shares held by the public owners of a fertilizer partnership that is 51.6%-owned by Freeport were exchanged. ``The consideration is both more definite and attractive and allows the new company to do things neither company could do by itself,'' Douglass Pasquale, Arcadian chief executive, said in an interview. Under terms of the new transaction, Potash will acquire Arcadian's 45.5 million shares outstanding for $25.93 a share, an 18% premium to Arcadian's closing stock price of $22 in New York Stock Exchange composite trading Friday. The company's shares jumped $2.50 to $24.50 in Big Board composite trading Tuesday. The parties also agreed to establish a floor of $25 an Arcadian share for the acquisition and a ceiling of $27 a share. That guarantees Arcadian shareholders a premium of at least 14% no matter what both companies' stock prices do prior to closing. Potash will pay Arcadian shareholders $12.25 a share in cash plus Potash common stock at a ratio of 0.17713 Potash share per Arcadian share. Potash closed Tuesday on the Big Board at $73.75, down $2.25. The company will also assume $525 million of Arcadian debt along with about $300 million in cash. The agreement will restrict Arcadian from seeking competing offers and provides for a breakup fee of $25 million in Potash's favor should Arcadian terminate the agreement for any reason. Late Monday, New Orleans-based Freeport ruled out a bidding war, saying it wouldn't raise its offer. The acquisition will be subject to due diligence and the approval of Arcadian shareholders and regulators, including antitrust clearance. While Arcadian is seen as a company with strong management and cash flow, Wall Street has complained that the company's emphasis on the nitrogen-fertilizer business has left it too exposed to commodity cyclicality. Nitrogen-fertilizer production uses natural gas and ammonia as its raw materials, and prices for those commodities tend to be unpredictable. For its part, Potash is positioned strongly in both phosphate and potash, a potassium compound. By adding nitrogen to its product base, the combined company, in effect, becomes a one-stop producer and supplier for the three primary soil nutrients required by plants. It further becomes a formidable opponent for IMC Global Inc., which is also well diversified but with a considerably smaller position in the nitrogen business. Potash books about half its sales overseas, while Arcadian's foreign sales are about 11% of total sales. Potash will get access to Arcadian's key nitrogen production in Trinidad and Tobago, while Castelli's assets will benefit from Potash's world-wide marketing network. The overseas angle is important because the current tightness in world grain stocks and reduced agricultural subsidies world-wide bode well for growth in fertilizer demand abroad. Potash's chairman and chief executive officer, C.E. Childers, said that because the companies really don't overlap much, he doesn't envision many staff cuts. He said he expects the deal to be accretive to Potash earnings immediately.
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