by Salman Ahmed
A celebrity marriage or break up is the investment equivalent of a large merger or acquisition. Both involve household names, large sums of money, and attract media attention.
While celebrity news outlets obsess about Brangelina, investors are paying close attention to two mega deals making headlines: Agrium’s merger with PotashCorp for $US 36 billion and Bayer’s $US 66 billion deal for Monsanto. Both deals affect Steadyhand clients. The Steadyhand Equity Fund holds Agrium, while Steadyhand Global Equity holds Bayer.
Naturally, investors are drawn to the large dollar figures of these deals, but other valuable insights are also on offer. Executives signal the future direction of their companies through the transactions. Take Bayer, for example. Most people may know its pharmaceutical business, which includes Aspirin, but it also has an agricultural business. The purchase of Monsanto, an agricultural behemoth, is a sign that Bayer’s management sees more opportunities in ag-related business.
We can take some different cues from the PotashCorp/Agrium merger. The glory days of PotashCorp seem well behind it. In the late 2000s, a tonne of potassium fertilizer cost $900, fueled by demand from China and a cartel controlling supply. Today it sells for close to $150. PotashCorp needs to look for alternative ways to increase profits. A merger with Agrium helps diversify its revenue sources and may also provide cost savings.
In both cases, the reasons for wanting to own the company have changed, as have the risks. Our managers are incorporating these changes into their analysis to determine if the entities, in their proposed form, are worth the price. If not, expect them to trim the positions or sell the stocks outright.