(Reuters) – Fertiliser maker Yara’s new chief executive, who was to start in February, quit on Friday just days after the firm announced it was in merger talk with rival CF Industries to create a $27 billion company.
Svein Richard Brandtzaeg, who announced in July that he would take the helm at the world’s biggest nitrate fertiliser maker, said he will stay on as CEO of aluminium producer Norsk Hydro, where he has worked for the past 29 years.
“The most important precondition for me to join Yara is no longer in place,” Brandtzaeg told Reuters. “I was informed about the merger talks just before the media was.”
“I did not know about merger talks when I agreed with Yara in July and I am not obliged to take the CEO position of Yara under such circumstances,” Brandtzaeg added.
Yara and Chicago-based CF Industries announced this week that they were in early stage talks about a merger of equals that would create a rival in size to world number one fertilizer producer Potash Corp of Saskatchewan.
Yara said Joergen Ole Haslestad would continue as interim CEO and it would relaunch its search for a new chief.
“The (merger) talks are at an early stage and it is important to emphasize that they are based on a common understanding that any merger will create significant value,” Yara Chairman Leif Teksum told Reuters.
Besides the search for a new CEO, the merger faces other hurdles. The Norwegian state owns 36 percent of Yara and plans to keep at least 34 percent of the firm. It also insists that the headquarters must remain in Oslo.
“We continue to believe this potential merger is not a done deal, notably given the Norwegian government ownership,” Deutsche Bank analysts wrote in a research note.
Even if the government wanted to change its stance, it rules in a minority and its opposition has already said it will not compromise.
Teksum said he was “very familiar” with the government’s stance and intentions with Yara.
Norne Securities analyst Tomas Skeivys said Brandtzaeg’s resignation could suggest the merger talks are further along than the companies acknowledge.
“If the reason for Brandtzaeg’s departure is that this is part of the negotiations about who gets the CEO position, given that the headquarters has to be in Norway, then it might suggest that the merger talks are at a more advanced stage than what they have led us to believe,” he said.
A GOOD MATCH
From a business perspective, Yara and CF are a good match with few overlaps and a lot of complementary operations, analysts have said.
CF is focused on production and operates mainly in the United States while Yara has a better position in more complex products, blending and distribution, helped by a sales network in 150 countries.
The deal would give CF access to a vast global distribution network while Yara would gain access to cheap U.S. gas, the top ingredient in fertilisers.
At Hydro, Brandtzaeg established a reputation as a top manager, guiding the firm through one of the industry’s most turbulent times and leading it into the current upswing with a top flight balance sheet.
The benchmark aluminium price on the London Metal Exchange has risen about 10 percent so far this year on expectations that the market will swing into deficit this year after many years of overproduction and surpluses.
“Fundamentally, the market balance looks more promising than what we have seen for quite a long time,” Brandtzaeg said.
Shares of Hydro, also a hydro-electric power producer, are up 38 percent over the past year, outperforming the Oslo benchmark’s 18 percent rise.
Hydro shares traded flat on the Oslo bourse while Yara was down 1 percent.
By Balazs Koranyi and Joachim Dagenborg (Additional reporting by Ole Petter Skonnord; Editing by Edwina Gibbs and Susan Thomas)