Canada's Agrium Inc (AGU.TO) and Potash Corp (POT.TO) of Saskatchewan Inc agreed to merge to create the world's largest fertilizer company and navigate a severe industry slump, assuming the deal can first overcome close regulatory scrutiny.

Potash Corp shareholders will own 52 per cent of the new company, with Agrium shareholders owning the rest if the deal closes in mid-2017 as the companies hope, they said on Monday.

Agrium Chief Executive Officer Chuck Magro will be CEO of the merged company, whose market capitalization is projected at $36 billion. Potash CEO Jochen Tilk will become executive chairman.

Potash Corp is already the world's biggest crop nutrient company by capacity, and Agrium is North America's largest farm retailer.

The combined company would be dominant in North America, controlling nearly two-thirds of potash capacity, 30 per cent of phosphate production capability and 29 per cent of nitrogen capacity, according to National Bank Financial.

The tie-up comes as fertilizer companies' profits have fallen due to excessive supply and weak demand. Corn prices have touched seven-year lows and wheat 10-year lows, giving farmers less incentive to maximize production with fertilizer.

"Having a larger, more diversified, integrated nutrients company will be the best solution," Magro said on a conference call. "Windows open and windows close. This is the best opportunity with the best partner."

Potash Corp's U.S.-listed shares dipped 0.1 per cent to $16.95, while Agrium shed 1.6 per cent to $93.73.

The deal would be the latest in a string of agriculture merger attempts, including potential combinations of seed and chemical companies Monsanto Co with Bayer AG, and ChemChina with Syngenta AG .

REGULATORY RISK

Canadian and U.S. regulators will scrutinize the deal over concerns about reduced competition and potentially higher costs for farmers. Tilk said he was confident the transaction would be approved as proposed, without the need to divest assets.

Roger Johnson, president of the National Farmers Union, has said that his group would ask U.S. antitrust enforcers to stop the proposed merger

The deal may also have implications for Canpotex Ltd, which the two companies own with Mosaic Co. Tilk and Magro said they were committed keep selling potash to offshore markets through Canpotex.

The deal calls for the exchange of 0.400 common share of the combined company for each Potash share and 2.230 common shares for each Agrium share.

Both companies are subject to paying a $485 million termination fee.

The companies expect the deal to bring annual cost savings of up to $500 million from areas including distribution and retail integration, production and procurement but not from shutting any potash mines.

"There is little to substantiate how $500 million in synergies will be achieved," said analyst and investor Chris Damas.

Russian rival Uralkali produces potash more cheaply than even Potash Corp's largest mine, Damas said.

After the transaction closes, the new company will be based in Saskatoon, Saskatchewan, with Canadian corporate offices both there and in Calgary, Alberta.

Financial advisers include Barclays Capital Inc and CIBC Capital Markets for Agrium, and BofA Merrill Lynch and RBC Capital Markets for Potash. Morgan Stanley & Co LLC is financial adviser to both companies.

Stikeman Elliott LLP and Jones Day are legal advisers to Potash. Agrium's legal advisers are Blake, Cassels & Graydon LLP; Norton Rose Fulbright Canada LLP; Paul, Weiss, Rifkind, Wharton & Garrison LLP; and Latham & Watkins LLP.