K+S Bid Unease Underground

Workers at German fertilizer specialist K+S are worried an unsolicited takeover bid from Canadian rival PotashCorp could end up costing them their jobs.
Salt of the earth.

There’s no sunlight in Thomas Metz’s world some 700 meters underground. Down here, it’s a balmy 28 degrees Celsius year round.

“It’s Germany's biggest adventure,” said the 50-year-old miner proudly.

Surrounded by salt deposits used for fertilizers, Mr. Metz is in his element. Both his father and grandfather mined for this white gold before him. Born in Bad Hersfeld near the border between the central German states of Hesse and Thuringia, Mr. Metz trained as a mining engineer. Thirty-five years later, he is in charge of 140 workers at the Werra mine operated by fertilizer specialist K+S.

Two weeks ago, the underground world of Mr. Metz and his 14,000 colleagues was turned upside-down after they heard Canadian rival PotashCorp had made a friendly takeover bid of €41 ($45.84) per share for K+S.

The German company has since rejected that offer, but since K+S lacks an anchor investor, the Canadian firm could still try to buy up its freely floating shares. The independence so cherished by K+S management and workers would then be gone.

PotashCorp is now trying a charm offensive to assuage the fears at K+S. How will it play out? That’s that question being asked at both the headquarters of Kassel-based company and deep underground inside its mining operations.

We’ve always come up with ideas together and pulled ourselves out of difficulty. Harald Döll, K+S workers council

In the meantime, the miners do the work as it’s been done for centuries: Drilling, blasting, loading, taking it to the surface. Mr. Metz tries to put on a brave face “in front of the boys,” he said. Nearby, two young trainees are preparing to drill into the rock wall. This sort of precision work was supposed to provide them a job for a lifetime. But their futures are now in as much doubt as the independence of K+S.

“The good think about mining is that you can’t simply close down a mine and open it somewhere else,” said Mr. Metz, aiming to reassure himself. The uncertainty is taking a toll though.

“We don’t need anyone, we’re very successful on our own and have already been through quite a lot,” he said.

He is right about that. K+S has bounced back remarkably well from the global economic crisis and crash in the potash market in 2013.

“We’ve always come up with ideas together and pulled ourselves out of difficulty," said Harald Döll, head of the company’s workers council.

 

159 K+S-01 WTB 2014

The third generation of his family to work for K+S, he joined its non-executive supervisory board in 2009.

“The outlook is good but now someone wants to grab it out from under us,” Mr. Döll said.

After two tough years, K+S chairman Norbert Steiner announced in May that sales had hit €3.82 billion ($4.27 billion) as operating profit surged to €641 million.

Shareholders were pleased and the company’s stock has risen considerably; K+S is once again paying a solid dividend this year.

By buying the U.S. salt producer Morton Salt, the German company helped reduce its sensitivity to the fluctuations of the potash market. Mr. Steiner also wants to boost its growth potential with a major production site in Canada. Known as the “Legacy” project, it would lower global production costs for K+S and extend the lifetimes of its mines in Germany. At least that’s what Mr. Steiner said.

His German workers are counting on him. Even Mr. Döll, who had to back cost-cutting of €500 million, called the company’s strategy “clever” with “broad” product portfolio that makes K+S “perfectly positioned” for market fluctuations.

The German company has something else going for it that its Canadian and Russian rivals don’t: K+S produces some 30 percent of the world’s magnesium sulfate, which is used a special fertilizer for winemaking. Mr. Döll called it “a kind of life insurance” for the mines in Hesse and Thuringia.

The company, which has a history stretching back 125 years, was at times the world’s leading potash producer. There were potash syndicates and cartels, but also expropriation after the Second World War and a consolidation process that has left K+S the fifth biggest potash producer in the world. Can it remain independent?

Many analysts speculate that PotashCorp wants to take over K+S to gain control of the Legacy project and keep its production capability from reaching the market. That’s because the Canadian company has ramped its own production in recent years, contributing to overcapacity in the $20-billion global potash business.

The worst case scenario for K+S workers would be throttling or even shutting down of its German sites, which have production costs twice that of the competition in Canada.

 

Dorit Marschall and Maike Telgheder reported from Heringen and Frankfurt. To contact them: [email protected]