Expanding retail network
Over the past six years ending 2015, Agrium (AGU) has acquired 272 retail locations. In 2016, the company has already acquired over 65 locations. Growing retail locations require capital. By merging with PotashCorp (POT), Agrium is expected to accelerate the growth in retail business through what Agrium’s CEO Charles Magro calls “financial horsepower.”
Two key sales drivers for fertilizer companies (MOO) such as PotashCorp (POT), Agrium (AGU), Intrepid Potash (IPI), and CF Industries (CF) are prices and volumes. Earlier in this series, we saw that PotashCorp has aggressively worked to lower its potash cost of production to maintain its margins. Through a merger with Agrium, the company pivots its attention to volumes.
During the joint merger presentation, Jochen Tilk of PotashCorp stated that the company will have access to Agrium’s vast retail network. This will help both companies expand volumes, as Agrium gets access to low cost products through PotashCorp. Tilk also stated that the company plans to push “high-end products” through this network, which could mean an opportunity to diversify into specialized products with higher margins.
Breaking down synergies
Both companies expect ~$500 million in synergies of which ~$150 million will likely come from distribution and retail, ~$250 million will likely come from product optimization and SG&A costs, and the remaining $100 million will come from procurement synergies.
Track prices of key NPK fertilizers on our website and see Week in Focus: Why Agricultural Fertilizer Stocks Fell Last Week for more information.