Agrium Inc. said Feb. 25 that it submitted a proposal to the board of directors of CF Industries Holdings Inc. to acquire all of the capital stock of CF for cash and Agrium shares at $72.00 per CF share, or a total of approximately $3.6-billion, based on Feb. 24’s closing price of Agrium shares. Agrium says the proposal represents a premium of 30 percent over CF’s closing price on Feb. 24, and a premium of 42 percent over the 30-day volume-weighted average share price of CF. Under the terms of the proposed transaction, stockholders of CF would be entitled to receive one Agrium common share and $31.70 in cash for each CF share. Of the total consideration, approximately 56 percent would be in Agrium common shares and 44 percent would be in cash. CF shareholders would wind up owning 24 percent of Agrium shares.
The Agrium bid for CF is contingent on CF terminating its own bid for Terra Industries Inc. (see below).
CF on Feb. 25 acknowledged that it received the unsolicited Agrium proposal. It said the CF board would evaluate it carefully and make a determination in due course.
“The proposed transaction is strategically compelling and a superb opportunity to create value for both Agrium and CF shareholders,” said Agrium President and CEO Mike Wilson. “Adding CF’s strong North American nitrogen, phosphate and extensive crop nutrient distribution assets to Agrium’s broader global wholesale and retail capabilities would greatly enhance our existing portfolio and enable us to create a premier global franchise across the entire agricultural value chain. We will have combined revenues of nearly $14-billion and become a global leader in nutrient production and distribution. The acquisition would also triple our phosphate and UAN capacity and further strengthen all aspects of our business. We expect to achieve significant operating synergies – well in excess of those contemplated in CF’s proposal to acquire Terra Industries Inc. – and expect the combination to provide many benefits to the customers, suppliers, and employees of both Agrium and CF, as well as the communities in which both companies operate. Furthermore, our offer presents CF stockholders a compelling opportunity for significant long-term value through their ownership in the combined company. Importantly, this proposed transaction will not diminish our ability to continue to build on our position as the leading North American agricultural retailer, further expand our potash capacity and advanced technologies business or pursue other strategic opportunities. We look forward to engaging with CF’s board of directors to quickly reach a negotiated agreement and deliver on the exciting opportunities this combination offers to both companies.”
Agrium expects to realize substantial annual operating synergies of approximately $150-million from the combination within three years of closing. It expects the transaction to be accretive to both earnings and cash flow in 2010 and significantly accretive on both measures in subsequent years.
Agrium says the proposal is not subject to a financing condition as it has sufficient cash resources and committed financing underwritten by Royal Bank of Canada and The Bank of Nova Scotia to fund the cash portion of the proposal. RBC Capital Markets and Scotia Capital are acting as financial advisors to Agrium, and Paul, Weiss, Rifkind, Wharton & Garrison LLP and Blake, Cassels & Graydon LLP are providing legal advice.
Agrium noted that it had serious discussions regarding a combination with CF prior to CF’s initial public offering in 2005. Agrium said the deal was compelling then, and even stronger now. Agrium noted that it has a track record of successful acquisitions and integrations, spanning the entire agricultural value chain. It says an Agrium-CF deal would create a company with a substantially larger global footprint. The combined crop nutrient production capacity of about 17 million mt would
touch over 20 million mt crop nutrients through wholesale, retail, and advanced technologies businesses. Agrium said this balanced portfolio would be a more stable company, better able to navigate the volatility of commodity cycles.
Wilson told analysts that CF’s extensive storage and distribution network throughout the Eastern Cornbelt, coupled with Agrium’s distribution network primarily concentrated in the Western Cornbelt, would provide significant efficiencies. It noted that CF owns more than 41 storage and distribution facilities across the U.S. with total storage of 1.8 million tons, as well as CF’s access to the main gateway of North American fertilizer imports and exports in New Orleans. It said CF’s 50 percent stake in Keytrade will complement Agrium’s growing global distribution business, including its recent acquisition of a 70 percent stake in European distribution via Common Market Fertilizers.
Agrium is not anticipating any regulatory hurdles and does not expect to have to divest any assets as a result of the combination, saying the assets are more complimentary than overlapping. Wilson said the retail segment makes its own decisions in purchasing product. Today about one-fourth of their purchases come from Agrium’s wholesale business. “I still expect the retail to purchase from a wide variety of suppliers, I’d be surprised if it went up more than half. I think it would stay well below half, and likely perhaps well below a third.”
Bruce Waterman, CFO, explained that CF shareholders may have some flexibility in getting to their $72 per share, conceivably taking all shares or all cash, or the combination of the two.
Wilson said his expectation is to enter into a discussion with the CF board in a fairly rapid fashion, and subject to regulatory approval, to close it as quickly as possible. “I’d love to see it close within 90 days.”
Most fertilizer industry sources were surprised by the news. One termed it a shock out of left field. Several said they thought it was a fair offer and it stood a good chance of going through, especially with Agrium’s resources. CF has a 52-week high and low of $172.99 and $37.71, respectively. The company began its IPO in 2005 at $16.
Another source added that in light of all the money made by large producers in 2008, it is surprising that more have not been out trying to buy up assets, at least to shield themselves from being targets.
“CF has a lot of dry warehouses, a lot of storage that they weren’t using,” said one source, “so this is a perfect fit for Agrium, more storage for wholesale and retail operations, and it gives them a strong N position.” He said the downside is for CF contract holders. “CF still has plenty of supply contracts in place with old members, and those contract holders always get first crack. They are the ones who will potentially suffer.” These concerns were expressed by several.
Unlike the CF-Terra deal, the Agrium-CF deal brought out more dealer worries about the loss of CF as a supplier. “We don’t compete with our customers,” is a line often used by some fertilizer producers. Dealers and cooperatives can currently rest easier with Terra and CF on this basis. However, Agrium is now the largest retailer in the country. While Agrium says its retail division sources product independently, one source said last week that it all comes back and hits a consolidated balance sheet.