Chris McKay, Potash Corp. load-out supervisor at the Cory Mine, examines potash inside one of the storage facilities near Saskatoon, October 10, 2013.DAVID STOBBE/Reuters
Potash Corp. of Saskatchewan Inc. has killed its $8.7-billion (U.S.) proposal for K+S AG, saying its German rival's lack of co-operation and the weaker commodities market no longer made a merger attractive.
The world's largest fertilizer producer had sought to meet with K+S's management for months but was rebuffed. K+S said the offer undervalued its business and feared that Potash Corp. would cut jobs and production – an assertion the Canadian company denied.
"Challenging macroeconomic conditions have contributed to a significant decline of global commodity and equity markets," Potash Corp.'s chief executive officer, Jochen Tilk, said late on Sunday.
"In light of these market conditions and a lack of engagement by K+S management, we have concluded that continued pursuit of a combination is no longer in the best interests of our shareholders," the statement said.
The news sent K+S shares down nearly 25 per cent to €23.66 ($34.64) per share, lower than their price before the bid became public in June. Meanwhile, Potash Corp.'s shares gained 1.7 per cent, closing at $27.42.
Acquiring K+S would have given Potash Corp. control over about 30 per cent of the potash market as well as K+S's Legacy project in Saskatchewan, home to most of the Canadian company's potash mines.
Potash Corp. had planned to incorporate K+S's Legacy into Canpotex, its marketing juggernaut that sells potash outside North America. K+S did not want to be part of Canpotex and has long said it preferred to market its own potash.
K+S said on Monday the bid withdrawal created clarity for the German miner, the world's largest salt producer and Europe's main potash supplier.
"We are convinced that we can successfully develop our company," K+S's chairman, Norbert Steiner, said in a statement.
Mr. Steiner reiterated that the board remained unconvinced the Canadian company was committed to safeguarding K+S jobs and its business.
Potash Corp.'s bid for K+S was a bold move for Mr. Tilk, who has been on the job as CEO for only about a year.
Analysts had criticized the merger and said it was a pricey way for the Canadian miner to influence potash prices once again.
Potash Corp. has lost some of its dominance because of new competition and the 2013 breakup of the Russia-Belarus potash cartel, which along with Canpotex used to control nearly 70 per cent of the market and had considerable influence over potash prices.
Mr. Tilk suggested in September that China, one of Potash Corp.'s major clients, would have more leverage to squeeze Canpotex on prices given the weakness in the market.
Potash Corp.'s bid represented a nearly 60-per-cent premium on K+S's stock price over the past year. It was one of the largest deals in the mining industry since the commodities market started to plunge four years ago.
Potash Corp. declined further comment. The company's stock has lost 33 per cent this year, in line with several of its peers, as prices for its key commodity continue to come under pressure. Many producers have refused to curtail production despite new supply that is slated to come into the market over the next few years.
While the demise of the offer for K+S might temporarily cheer some Potash Corp. investors, "we are concerned the stock could reassume its creep lower as potash prices could continue to fall" through the first quarter, Joel Jackson of BMO Nesbitt Burns Inc. wrote in a note on Monday.
With a report from Ian McGugan
Rachelle Younglai