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CIBC, RBC hired at 11th hour for potash megadeal

A train car waits in line at a Potash Corp. mine site near Saskatoon in this file photo.

David Stobbe/Reuters

Two Canadian banks were brought in at the eleventh hour to work on the blockbuster fertilizer merger of Potash Corp. of Saskatchewan Inc. and Agrium Inc.

Just weeks before the $36-billion (U.S.) deal was announced in early September, Canadian Imperial Bank of Commerce was contacted to work as a financial adviser to Agrium and Royal Bank of Canada was engaged to work for Potash Corp., according to the management information circular.

The Canadian banks were tapped months after two U.S. banks had been working on the deal – a move that one source described as ensuring Canadians were included.

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Exploratory talks between Potash Corp.'s chief financial officer and Agrium's corporate development executive had started in March, 2015. About a year later, Merrill Lynch started working as a financial adviser to Potash Corp. and Barclays started advising Agrium.

But in a country where a foreign bid for Saskatoon-based Potash Corp. was rejected in 2010 because it did not provide an overall benefit to Canadians, Potash Corp. and Calgary-based Agrium were not taking any chances.

"There was a feeling that it was the politically right thing to do," the source said. CIBC and RBC were hired in August, according to the management information circular.

CIBC is also the lead bank on Agrium's senior credit facility and a member of the lending syndicate to Potash Corp. RBC provides banking services to both fertilizer producers.

The chief executive officers of Potash Corp. and Agrium have been trying to win over Saskatchewan Premier Brad Wall, who helped to thwart Anglo-Australian miner BHP Billiton's offer for Potash Corp. They have told Mr. Wall that Saskatchewan's interests – namely potash revenues and jobs – are a priority, according to the Premier.

Potash Corp. operates five potash mines in Saskatchewan and Agrium operates one in the province.

In addition to hiring the Canadian banks, Potash Corp. and Agrium brought in Morgan Stanley to act as an adviser to both companies. Morgan Stanley was tapped at the end of August, after the Canadian hires.

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Other big commodities companies have sought help from a dual adviser. Commodities trader Glencore PLC and the now-defunct mining giant Xstrata used former Citigroup executive Michael Klein to work as a strategic consultant to both parties.

The management circular, which was filed last week, showed that Potash Corp. and Agrium were in preliminary talks when Potash Corp. was still trying to buy German rival K+S AG in an $8.7-billion deal. But discussions between the Canadian companies did not become serious until about four months after Potash Corp. killed its unsolicited offer for K+S in October, 2015.

Both producers are struggling with weaker fertilizer markets, in which a surplus of potash has sent prices down 60 per cent over four years.

They say a merger would lead to $500-million in annual savings. Potash Corp. is the world's largest producer of fertilizer by capacity. The merger would boost the combined entity's potash position to 62 per cent, and give it a 30-per-cent market share in nitrogen and a similar position in phosphate, according to National Bank Financial.

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Economics Reporter

Rachelle Younglai is The Globe and Mail's economics reporter. More

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