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The Globe and Mail

An open letter to Premier Brad Wall on Potash Corp.

The exterior of the Potash Corp. Rocanville potash plant on on Nov. 3, 2010 near Rocanville, Sask. Potash Corp. is cutting its work force by about 18 per cent, affecting about 1,045 people worldwide.


Dear Premier Brad Wall,

I read your letter to the chairman of Potash Corp. of Saskatchewan Inc., admonishing the company for cutting 18 per cent of its work force while maintaining that the quarterly dividend to shareholders is – in the words of chief executive Bill Doyle – "sacrosanct."

I understand your concerns: No premier can shrug when the province's top company starts shedding jobs but takes care of shareholders. It doesn't look good. If I were premier, I'd be disappointed too.

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But come on, isn't it time to sever the bond between the province of Saskatchewan and the fertilizer producer? It's a publicly traded company, owned by shareholders. And as you know, directors of companies work for shareholders. Actually, it goes beyond work: Directors have a fiduciary obligation to a corporation's interests.

Potash Corp. didn't make the rules; it follows them, as does any law-abiding company. Yes, sometimes the results aren't pretty. Bank of Montreal cut 1,000 jobs last quarter even as it reported a profit of $1.1-billion. The lovable Warren Buffett was behind 740 job cuts at a H.J. Heinz Co. tomato plant in Leamington, Ont., in November.

The bigger picture, though, is one of corporate health. When companies work for shareholders, they are incentivized to make the necessary decisions to drive profitability and market share. When they succeed, they grow – and growth tends to bring employment.

I know that you helped rescue Potash Corp. from the clutches of BHP Billiton Inc. in 2010, when the global mining company had initiated a $39-billion (U.S.) hostile takeover bid for it.

Back then, the chief concern was that BHP would dismantle Potash Corp.'s cartel-like marketing arm, driving down potash prices and potentially disrupting provincial tax revenue.

You wanted the cartel to support potash prices and you got your wish: In cutting jobs, Potash Corp. is reducing output and attempting to drive prices higher.

Why? Global potash prices have been struggling ever since rival Uralkali took a page from BHP's playbook, leaving its joint venture with Belarusian Potash Co. in the summer to focus on producing fertilizer at greater volumes.

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In other words, killing BHP's bid for Potash Corp. appears to have had little upside beyond preserving some executive jobs.

As for shareholders, they have paid dearly.

The BHP offer valued Potash Corp. at $130 a share; three years later, the shares trade 26-per-cent below that takeover price (after accounting for a three-for-one stock split).

Perhaps shareholders don't figure highly in your assessment of the company. But a quick look at where Potash Corp. has come from should correct this view.

As a provincial Crown corporation in the 1980s, it was a financial basket case. Advisers said a spinoff and initial public offering would only work if investors could be attracted to the deal – and that meant the province would have to back off as owners.

It worked. Since the shares debuted in 1989, they have risen about 4,000 per cent after adjusting for share splits.

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Let me put that into perspective: It is more than 16 times the return for the S&P/TSX Composite Index over the same period. After factoring in dividends, Potash Corp. has delivered more to shareholders than Apple Inc.

The shares have been helped by rising fertilizer prices over the years. But Potash Corp. has also been busy making moves of its own, including deals for overseas companies.

Its purchase of Texasgulf Inc. delivered assets in North Carolina, Arcadian Corp. delivered assets in Trinidad and Minera Yolanda SCM delivered assets in Chile, to name just three acquisitions that have propelled the company to the global stage.

Investors have been very good for Potash Corp., and Potash Corp. has been very good for the province of Saskatchewan.

So I'll leave you with a question: If Potash Corp. followed your advice and put salaries above shareholders, who would invest in it?

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