Agrium and PotashCorp stock should be able to sustain a recent share price bump, as long as the two companies continue to discuss a merger, according to a Saskatoon-based investment adviser.
“Usually you see the short term bump, but now it will really depend on whether this news comes to fruition or not,” said Sean Meshke, an investment adviser with Prairie Wealth Management.
“Should those merger talks break down, we would probably see both of those prices fall back down towards more where they were trading at before.”
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Both companies have seen their stock rise since the two confirmed Tuesday morning they were discussing a potential merger.
As of Wednesday evening, Agrium’s share price had risen roughly seven per cent since the announcement, while PotashCorp increased by more than 13 per cent.
The markets are reacting positively to the news because a merger would help cut costs for both companies by becoming a larger entity, Meshke said. The talks come at a time when the industry is trudging through a soft potash market that many experts say is due to oversupply.
“Right now what you’re seeing is the revenue side is getting a big hit because the price of potash has been coming down and as the price of potash comes down you start seeing these companies earn less and less money,” Meshke said.
“The only other way they can try to make that revenue or profit margin is to… reduce the costs within the organization.”
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Experts, including Meshke, say if a merger is to happen, it would be part of a long term strategy. He said he would advise those who own stock in either company to have a similar mindset.
“I would continue to stay into it right now,” Meshke said.
“I do believe potash is getting more to the bottom end or the low end of the cycle and hopefully they would get the bounce back at that given moment of time.”
Meshke added that Prairie Wealth Management is not currently investing in either company.
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