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Merged fertilizer firm Nutrien eyes U.S. farm suppliers

Regulatory-driven divestitures are creating a sizable war chest for acquisitions

A worker checks mining equipment at the Potash Corporation of Saskatchewan’s Lanigan mine.

Nutrien, the company to be formed from the merger of Agrium and PotashCorp of Saskatchewan, plans to expand its U.S. farm supply network and return cash to shareholders, Chuck Magro, Agrium CEO, said Nov. 15, as it leverages unusually flush coffers during an agriculture slump.

Regulators in China and India require Potash to divest minority stakes in three companies — SQM, ICL Israel Chemicals and Arab Potash — as a condition of approving the $25-billion merger (all figures U.S. funds).

The sales could create a $5-billion war chest after taxes and banker fees, according to a BMO estimate, helping Nutrien to consolidate the fragmented U.S. farm retail sector, which sells seed, chemicals and fertilizer to farmers.

Nutrien, which Magro will lead as CEO, will clarify its full capital strategy shortly after the merger closes late this year and its new board takes shape, he said.

Shareholder return

Some capital will fund retail growth and Nutrien will also return cash to shareholders, either with a larger dividend or share buybacks, Magro said on a conference call with analysts.

“The allocation of capital is really going to be targeted toward long-term shareholder growth,” Magro said. “Retail growth will be a key priority.”

Indian regulators have approved the merger on the condition that Nutrien sell the three equity stakes by April 2019.

The company is open to big farm retail acquisitions, and Agrium has some medium-size deals in the works this quarter, Magro said.

Agrium is already the biggest U.S. farm retail supplier and has for years been steadily buying up stores, which are seen as providing more stable profits than fertilizer that is sold wholesale.

Bulking up the farm retail network would make Nutrien less prone to fertilizer price swings, said Justin Flowerday, head of equity research at TD Asset Management, the 10th-largest investor in Agrium and a top-20 Potash shareholder, according to Reuters data.

“This retail franchise in the U.S. is kind of the crown jewel of the combined organization,” Flowerday said in an interview before Magro’s comments. “They have the ability to be patient and find the right locations, the right businesses and build up that retail network.”

TD also hopes Nutrien pays down debt and buys back shares.

Big player

Agrium accounts for 19 per cent of the U.S. farm retail market with co-operatives including CHS Inc. and small companies making up the rest.

Expanding the farm retail business offers Nutrien the advantage of selling more of its own fertilizer in house, said Rob Spafford, portfolio manager at Cidel Asset Management, which owns Agrium shares. But it could also enter the seed and chemical production sector if attractive assets become available from other pending mergers.

Brian Madden, portfolio manager at Goodreid Investment Counsel, said Nutrien’s biggest priorities should be buying back shares, then hiking the dividend, to make the company appealing to more investors.

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