Fertilizer companies locked in battle over who buys whom


Capital Press

Three U.S. fertilizer companies are locked in a takeover battle that may result in a major industry merger -- or end in a stalemate.

Earlier this year, nitrogen and phosphate manufacturer CF Industries of Deerfield, Ill., proposed buying out nitrogen producer Terra Industries of Sioux City, Iowa.

Since then, Terra has repeatedly resisted CF Industries' takeover attempts, most recently rejecting a merger offer that would provide its shareholders with 0.465 CF shares for each share of Terra.

The proposal undervalued Terra Industries and doesn't make strategic sense, according to a statement from the company.

Terra has tried to diversify its business beyond the agricultural market into industrial nitrogen uses, but a merger with CF would result in a company primarily focused on farm sales, the statement said.

The combination would also expose Terra to risks from the phosphate fertilizer market, in which it currently doesn't compete, without providing meaningful power in that sector, the statement said.

CF Industries has argued that such diversification would benefit Terra's shareholders.

"Together we would create a company with greater scale and an improved strategic platform better able to compete in a global commodity industry," Stephen Wilson, president and CEO of CF Industries, said in a letter to Terra shareholders.

The conflict may come to a head during Terra's upcoming meeting with shareholders on Nov. 20.

CF Industries is expected to nominate several board members who are favorably disposed toward a merger, said Louis Meyer, an analyst with the Oscar Gruss & Son, a brokerage firm that researches mergers.

CF recently bought about 7 percent of Terra Industries' shares for $247 million.

As CF Industries has been trying merge with Terra, it's been fighting off takeover attempts by Agrium, a producer of nitrogen, phosphate, potash, controlled-release fertilizers and other crop nutrients based in Calgary, Alberta.

Stephen Wilson of CF Industries has called previous Agrium offers "grossly inadequate" and characterized the proposals as attempts to interfere with CF's potential merger with Terra.

Agrium has been undeterred by CF Industries' rebuffs, recently extending an offer to pay shareholders $40 per share of CF, plus a share of Agrium, through Oct. 22.

The merger would provide CF with similar cost savings and other advantages -- or "synergies" -- as a potential combination with Terra, but would "create a company with a substantially larger global footprint," Michael Wilson, Agrium's president and CEO, said in a letter to CF Industries' shareholders.

Long-term strategies probably aren't the only considerations in the merger offers.

At the time CF Industries first offered to merge with Terra, it was likely a defensive measure, Meyer said.

The company's stock prices had dropped sharply after last year's financial crisis, and its executives may have sensed a looming takeover attempt, he said.

"Nobody wanted to be taken over on the low end," he said.

By merging with Terra, CF Industries would become much larger and thus unlikely to be taken over due to antitrust considerations, Meyer said.

"It's all about taking a hostage," he said.

Since then, however, the dynamic of the battle has shifted because fertilizer stock prices have been on the upswing, Meyer said.

The ongoing conflict is largely being propelled by momentum and continued speculation about a merger in the industry, he said.

"Now, it's like we've been fighting so long, let's just keep fighting," Meyer said.

If a fourth party entered the fray, it may break up the logjam, he said.

Currently, however, CF is in a tough position. On one hand, it's not pleased with Agrium's offer. On the other hand, the possibility of a takeover by Agrium has boosted its stock prices, Meyer said.

If a merger with Terra goes through, CF's stock prices might be affected, he said. "Potentially, that takeover premium goes away."


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