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Agrium Can Do Better Than Potash

Liam Denning is a Bloomberg Gadfly columnist covering energy, mining and commodities. He previously was the editor of the Wall Street Journal's "Heard on the Street" column. Before that, he wrote for the Financial Times' Lex column. He has also worked as an investment banker and consultant.

Sometimes you hang out with a couple and think: "Really? You're with him/her? Huh."

That's kind of how I feel about the merger talks between Potash Corp. of Saskatchewan and Agrium.

As fellow Gadfly Brooke Sutherland explained here, both companies are suffering from a fertilizer market that looks like, well, fertilizer.

Any time commodity markets nosedive, the temptation to merge and strip out costs is strong. Steve Hansen, an analyst at Raymond James, puts a ballpark figure of $250-$500 million on potential annual synergies if Potash and Agrium wed. In rough terms, taxed and capitalized at 10 times, that's worth between 6 and 12 percent of the combined market cap of the two companies -- and that's after Tuesday's pop. Even so, Hansen confesses himself "a little perplexed" by the proposal.

Both companies are headquartered in Canada, ostensibly in the plant-nutrient business, and even members of the same marketing joint venture, Canpotex. But the similarities peter out pretty...