Norwegian company sees fertilizer firm as a strong complement

By MATEUSZ PERKOWSKI

Capital Press

A U.S. nitrogen manufacturer has been taken over by another major fertilizer company, but the merger has taken a much different form than initially anticipated.

Terra Industries, a nitrogen company based in Sioux City, Iowa, has agreed to a $4 billion buyout by Yara International, a fertilizer producer based in Oslo, Norway.

The announcement came roughly one month after Terra successfully defended itself against a hostile takeover attempt by CF Industries, a fertilizer manufacturer in Deerfield, Ill.

CF had tried to acquire its smaller competitor for about a year but finally withdrew its offer -- $29.25 per share of Terra, plus about one-tenth of a CF share -- in January.

The proposal undervalued the company and provided the wrong strategic direction, because Terra was looking to diversify its client base beyond agriculture, according to the firm's previous statements.

Yara International offered an all-cash bid of $41.10 per share of Terra as well as a connection to the industrial market. Yara sells industrial chemicals, such as those used to make electronic components and pharmaceuticals, among other products.

The merger agreement between Terra and Yara indicates that "cash is king," said Louis Meyer, a financial analyst who specializes in mergers at the Oscar Gruss & Son brokerage firm.

Terra's shareholders were able to convert their shares into cash, he said. An offer based partly on stock would continue to saddle shareholders with risk from the volatile fertilizer industry.

Merging with Yara was probably more palatable to Terra's executives as well, Meyer said.

"Chances are, the management at the company is going to be able to stick around," he said. "That makes the Iowa culture happy."

If Terra was acquired by CF Industries, there would have been more operational overlap between the two companies, Meyer said.

"Clearly, costs were going to come out of cutting employees," he said.

Yara executives expect to realize other "synergies."

Although the Norwegian firm already has a foothold in North America, most of its infrastructure is along the coasts, said Jørgen Haslestad, Yara's CEO. Terra's assets are primarily in the central U.S.

"Yara and Terra is a perfect fit," he said.

Terra's strategic location was an important factor in the deal, since it helps offset the higher price of natural gas -- a key nitrogen fertilizer component -- within the U.S., Haslestad said.

Compared to building a new plant in an area with cheap natural gas, such as the Middle East, buying existing infrastructure in the U.S. makes financial sense, said Hallgeir Storvik, Yara's chief financial officer.

Yara expects the Terra acquisition to save roughly $50 to $80 per ton of urea, compared to building new facilities and then shipping the finished product to North America, Storvik said.

Over time, advances in liquid natural gas transmission are expected to reduce major geographical variations in prices, he said.

Apart from the logistical advantages of manufacturing within the U.S., Yara also wants to develop a "physical and mental presence" in the North American market, rather than simply offloading product here, Storvik said.

"That creates the key basis for doing things the competition cannot do," he said.

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