Business Edge
Fertilizer company Agrium Inc. (TSX:AGU) will be on solid ground when the inevitable bottom of the agricultural commodities cycle hits – thanks to its recent retail acquisitions, CEO Mike Wilson says.
Agrium announced it closed its US$2.65-billion takeover of UAP Holdings Inc. last week, making the Calgary-based company the largest distributor of farm inputs in North America. It has also made acquisitions in Europe and China recently.
Many of Agrium’s peers have avoided the retail business “which makes me happy. We don’t need them around,” Wilson said at the company’s annual meeting last week.
Even though Agrium has been reaping the benefits of the soaring cost of wheat, corn, soybeans and rice by selling the fertilizers used to grow those crops, Wilson said it is important to have a cushion against an inevitable drop in prices.
He said Agrium learned its lesson back in 2002 – a time he jokingly refers to as “the year from hell” – when prices of major fertilizers like potash, nitrogen and phosphate all plummeted.
“There will be another bottom of the cycle for nutrients. They’re commodities. It looks like it’s going to be a long ways out, which is fantastic. But it will come,” Wilson told shareholders.
“Usually with commodities at the bottom everybody’s struggling and looking for cash and at the top they can’t figure out what to do with it.”
The UAP acquisition is expected to add another $550 million to the company’s bottom line by 2009, through both increased earnings and synergies.
The company also has a growing advanced-technologies business that is adding stable growth.
That division currently brings in $30 million in EBIDTA and “there’s no reason why it can’t head up toward the $50-million mark,” Wilson told reporters after the meeting.
“This stable component of your business is going to be up around $600 million by 2009 and we’re going to be positioned at the bottom of the next cycle to do a lot of great things.”
The company plans to buy a 70 per cent stake in Common Market Fertilizers S.A., one of Western Europe’s largest fertilizer distributors, in a deal expected to close the third quarter of this year.
It also holds a 19.6 equity position in China’s Hangfeng Evergreen Inc. and announced last month it planned to open an office in Beijing so that it can more easily grow its foothold in that booming market.
“We think there’s growth opportunity for us. So you have to be in the market to understand the market,” Wilson told reporters.
“It’s hard to do deals in China from Calgary.”
As for whether there are any more big transactions on the horizon for Agrium, Wilson said the company will focus on integrating UAP into its operations for the time being.
“From a big acquisition point of view, unless something fell on our lap, I think we need a year to digest that,” though he said Agrium is “always entertaining opportunities.”
