With a pending merger between two of the largest potash miners in the world, shares of Potash Corporation of Saskatchewan Inc. (TSX:POT)(NYSE:POT) have traded sideways for some time now, as investors and the market remain undecided as to how the company’s merger with Agrium Inc. (TSX:AGU)(NYSE:AGU) will affect the combined entity moving forward.
With Potash Corp.’s ex-CEO coming out recently stating he believes the recently announced merger will destroy value, investors and analysts remain split on the issue, with some suggesting that the deal may in fact improve Potash Corp.’s position as a global potash leader, improving the ability of the combined Potash Corp.-Agrium entity to impact global production numbers, and therefore prices.
After all, the Potash Corp.-owned marketing company Canpotex has for years attempted to influence global supply and demand fundamentals, much in the same way as OPEC has attempted to do in recent decades.
That said, the reality is that Potash Corp. has agreed to pay a premium for Agrium at a time when potash prices continue to hover near historical lows.
While some improvement in potash prices has taken place, the likelihood that potash prices will skyrocket to pre-financial crisis levels remains highly unlikely, making Potash Corp. a long-term growth play at best, and a value trap at worst.
My take on Potash Corp. is that slow and steady will be the common theme in coming years. As a pure-play commodities option for investors, Potash Corp. can also provide some much-needed diversification for a portfolio that may need additional defensive/negatively correlated securities for balance.
Invest wisely, my friends.
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