Toronto/Washington | Reuters — Canada’s PotashCorp and Agrium are more likely to win approval for a potential merger in Canada than in the U.S., but U.S. rejection of the deal would scuttle it globally, competition lawyers said.
Saskatoon-based PotashCorp and Calgary’s Agrium confirmed Tuesday they were in preliminary merger talks, toward a deal that would create a fertilizer and farm-retailing giant.
Canada is likely to look more favourably on the combination because its regulators more strongly weigh the potential for achieving efficiencies such as reducing overhead and optimizing shipping. This position has its roots in a desire by policymakers to strengthen companies operating in Canada’s smaller market.
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“The efficiencies defense will certainly loom large,” said Nikiforos Iatrou, competition group chair at law firm WeirFoulds in Toronto.
“It’s possible that in this case the efficiencies win the day in Canada but don’t carry the day in the United States.”
The defense was highlighted this year, when the Canadian Competition Bureau approved a deal between Superior Plus Corp. and Canexus Corp., saying that efficiency gains would be greater than the anti-competitive effects.
The U.S. Federal Trade Commission blocked the same deal, which was then scrapped.
U.S. to focus on product pricing
PotashCorp and Agrium have significant operations in the U.S., which would spur review by the Federal Trade Commission or the Justice Department.
U.S. regulators would focus primarily on prospects for the deal to raise prices for the companies’ fertilizer products, which account for as much as one-third of input costs for U.S. corn farmers.
A combined PotashCorp and Agrium would control 62 per cent of potash capacity in North America, 30 per cent of phosphate production capability and 29 per cent of nitrogen capacity, according to National Bank Financial.
Both U.S. regulators have taken an aggressive stance on mergers, said Andrea Murino, co-chair of competition at law firm Goodwin Procter in Washington.
“Just based on the market shares, the deal is going to get some really close scrutiny,” she said.
The prospect of having only two big U.S. potash sellers, down from three, might worry antitrust enforcers, said Ethan Glass, a U.S. Justice Department veteran now at Quinn, Emanuel Urquhart + Sullivan in Washington.
The merged company could sell Agrium’s potash mine at Vanscoy in west-central Saskatchewan to ease those worries, he said.
Agrium-PotashCorp’s clout could also be diluted by other developments with rival miners Mosaic Co. and K+S AG planning to add capacity in North America.
Under the Canadian review, PotashCorp and Agrium could argue their merger would enable the Canadian company to be a stronger global player.
“This idea of creating a ‘national champion’ pops up from time to time — and the federal government is often pressured to consider measures that would be supportive of this,” said Subrata Bhattacharjee, vice-chair of competition for law firm BLG in Toronto.
The deal may also catch the attention of regulators in China, a major potash buyer. Agrium, PotashCorp and Mosaic sell potash offshore through jointly-owned Canpotex.
Huy Do of law firm Fasken Martineau in Toronto said Chinese regulators may see the deal as an opportunity to dismantle Canpotex.
— Reporting for Reuters by John Tilak in Toronto, Rod Nickel in Winnipeg, Diane Bartz in Washington, D.C. and Michelle Price in Hong Kong.
