K S AG investors dumped shares, wiping as much as 1.5 billion euros ($1.7 billion) from its market capitalization, after Potash Corp. of Saskatchewan Inc. withdrew a 7.85 billion-euro proposal to acquire the German fertilizer company.
K S shares were down 19 percent to 25 euros as of 11:21 a.m. in Frankfurt trading, the biggest drop in more than two years and below the level before the takeover offer became public on June 25. In a statement yesterday, Potash Corp. cited significant declines in commodity and equity markets as well as a lack of engagement by K S management as reasons for its withdrawal. K S had sought a price about 22 percent higher than the 41 euros a share Potash Corp. had offered.
“K S's management is now under even more pressure to show the market the higher value of K S on a standalone basis,” Bankhaus Lampe analyst Marc Gabriel wrote in a note to clients.
Chief Executive Officer Norbert Steiner will now need to prove his bet is the right one to remain independent and develop a C$4.1 billion ($3.1 billion) potash project in Canada, right at the doorstep of Potash Corp. Amid a “challenging” commodities environment, K S management will have to come up with measures to improve the value of the company, Markus Mayer, an analyst at Baader Bank AG, said in a note to investors.
“It’s surprising because Potash was recently talking about how attractive a takeover would be,” Lutz Grueten, an analyst at Commerzbank AG said by telephone. The stock price drop is “not justified by the fundamentals.”
K S earlier dropped as much as 25 percent.
At conferences last month, Potash Corp. CEO Jochen Tilk talked up the benefits of a combination even as he indicated his company wasn’t “actively engaged” in a bid. K S stuck to its line that it didn’t see a basis for talks, while promising to review any new proposal put forward. While some investors were keen for a deal, K S had won support for its rejection of the deal from local politicians, who were concerned about potential job losses in their regions.
Thorsten Schaefer-Guembel, head of the opposition Social Democratic Party in the region of Hesse, welcomed Potash Corp. dropping its offer.
“A huge industrial-political loss has been avoided, which is a success for the unions, the employees and the K S management,” Schaefer-Guembel said in a statement. He called K S Germany’s last big producer of raw materials.
K S spokesman Michael Wudonig said earlier today the German company has taken note of Potash Corp.’s withdrawal. He declined to provide further comment.
Since K S rejected Potash Corp.’s offer in July, spot prices for potash in the U.S. have dropped while the Bloomberg Commodity Index of 22 raw materials is down 16 percent from its peak in May. Demand for the mined crop nutrient has fallen as farmers have less money to buy fertilizers amid lower crop prices.
Canpotex, a North American marketing association that includes Potash Corp., is the biggest producer of potash controlling 34 percent of global capacity, according to a K S presentation on its website. Uralkali and Belaruskali are ranked second and third respectively with K S the fourth biggest with 9 percent.