Potash Corp

Potash Corp. Buying K+S Would Allow Cuts to Mine Capacity Glut
2015-06-25 22:51:02.16 GMT


By Christopher Donville
(Bloomberg) -- Potash Corp. of Saskatchewan Inc.’s proposed
$8.6 billion-plus takeover of rival fertilizer producer K+S AG would allow it to cut excess mining capacity and support prices, which have fallen amid rising output.
Potash Corp. has long preached the virtue of price stability and has questioned plans by rival producers such as BHP Billiton Ltd. to build new mines. By proposing a takeover, Potash Corp. might be looking for a way to slow construction of
K+S’s Legacy mine in Canada, said P.J. Juvekar a Citigroup Inc.
analyst.
“The one school of thought is that this is a smart defensive move that allows them to get control of the future supply threat, which is the K+S Legacy project,” said Steve Hansen, a Vancouver-based analyst at Raymond James Financial Inc. “In other words, they get control of non-controlled tons, which are broadly perceived as a wet blanket on the market and future pricing.”
Potash supply is highly consolidated, with the top three producers controlling more than half of world shipments. Yet despite a few companies dominating the market, supply discipline has frayed in recent years.
In mid-2013, Russian producer PAO Uralkali quit a marketing joint venture with Belarus, opting to pursue market share instead of supporting prices, which subsequently plunged and still haven’t fully recovered.
The C$4.1 billion ($3.3 billion) Legacy project is scheduled to start production next year and reach 2 million metric tons of capacity by the end of 2017.

High Costs

Potash Corp. “is well known to manage capacity to maintain price discipline in the market,” New York-based Juvekar said in a note. The Canadian company may also consider shutting some or all of K+S’s high-cost capacity in Europe, Juvekar said.
A Potash Corp. spokesman didn’t immediately respond to a request for comment.
Kassel, Germany-based K+S said Thursday it’s evaluating a takeover proposal from Potash Corp. K+S is likely to reject the offer, which is more than 40 euros per share, because it deems the bid to be too low, according to people familiar with the matter.

For Related News and Information:
K+S Said Likely to Reject Potash Corp. Takeover Proposal
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