By Eyk Henning And Ben Dummett
Potash Corporation of Saskatchewan Inc. has dropped its efforts
to take over K+S AG for roughly $8.8 billion, derailed by a slump
in commodity prices and the refusal of its German rival's
management to engage in talks.
K+S said on Monday that it was informed of the withdrawal by
Potash Corp.
Jochen Tilk, chief executive of Potash, said the continued
pursuit of a combination is no longer in the best interests of his
company's shareholders. "Our proposal [of EUR41 per share]
reflected full and fair value, and was predicated on a
collaborative process with access to customary due diligence," said
Mr. Tilk in a statement.
Canada's Potash Corp. also said its offer would have benefited
both companies and shareholders, adding that it had made "credible
commitments to K+S's employees, unions and communities."
However K+S, which had repeatedly described Potash Corp.'s
promises on jobs as "unreliable," responded to news of the
withdrawal by repeating that the offer didn't reflect its
fundamental value and threatened production in Germany.
"We are convinced that we can successfully develop our company
based on a consistent implementation of our two-pillar strategy in
the long term, " K+S Chief Executive Norbert Steiner said in a
statement.
In a bid to break the stalemate, Potash Corp. suggested
alternatives for the companies to work together to reduce freight
costs and operate more efficiently. One possibility involved a swap
deal in which Potash Corp. would export crop nutrients from its
potash mine in eastern Canada to K+S customers, and K+S would do
the same from its Legacy potash project in Saskatchewan, according
to an Oct. 4 letter sent to K+S's supervisory board from Mr.
Tilk.
"These concepts were also rejected without further
consideration," Mr. Tilk said in the letter, a copy of which was
seen by The Wall Street Journal.
A Potash Corp. spokesman declined to comment on the letter and a
K+S representative couldn't immediately be reached.
Potash Corp. also declined to comment on its future plans. In a
news release, the Canadian company said it would continue to focus
on its growth strategy, but didn't elaborate.
The announcement of Potash Corp.'s withdrawal, which sent K+S's
shares down 25% in afternoon trading on Monday, comes after a
weekslong stalemate between the companies.
Management at K+S twice rebuffed advances from its would-be
buyer this summer, saying the proposed offer undervalued the
company. It also warned that a takeover could cost jobs, a flag
that won management both labor and political support. Several
German politicians vowed to work to thwart the deal altogether.
Over the past few weeks, Potash Corp. management came to the
conclusion that an offer of EUR41 ($46) a share was no longer
financially sensible after shares in the sector fell by roughly
40%, people familiar with the matter said on Monday. The offer
represented a 59% premium on the K+S share price in the 12 months
before the approach.
"With potash prices crashing week after week and global
fertilizer/commodity share prices declining," BMO Capital Markets
says, the bid "would've been difficult to continue for Potash
Corp."
A combination of K+S and Potash would have been the largest
mining deal since Glencore International PLC's takeover of Xstrata
PLC for nearly $30 billion in February 2012. Both companies mine
potash, a fertilizer, and a tie-up would have created a business
with the potential to control up to 30% of the global market.
Global potash prices have been falling for most of the year amid
worries over the global economy and weaker demand in major
regions.
Analysts have said that the spot price for potash in South
America, for example, has dropped to about $310 a metric ton from
near $360 over the summer, and many don't expect a pickup in prices
this year or next.
Despite the optimism from senior K+S executives, the collapse of
the tie-up appears to leave the company in an especially difficult
position.
An analyst poll conducted by industry research group Fertecon in
late September showed that, given the recent changes in potash
prices and the increasingly bearish midterm outlook, "most
analysts--industry and financial--are pessimistic about K+S's
future in the potash industry."
The Wall Street Journal reported late last month that large
German K+S investors were increasingly frustrated over the
company's refusal to engage in talks and saw risks of a massive
share slump should Potash walk away from a bid.
At the time, Deutsche Bank Asset & Wealth Management, one of
K+S's largest investors, expressed doubt about K+S's stand-alone
strategy given shifts in global supply and demand.
Joanne Chiu contributed to this article.
Write to Eyk Henning at eyk.henning@wsj.com and Ben Dummett at
ben.dummett@wsj.com
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(END) Dow Jones Newswires
October 05, 2015 13:07 ET (17:07 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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