CF Industries Holdings Inc. said March 9 that its board of directors has rejected the proposal from Agrium Inc. as grossly inadequate. CF also announced that its board of directors has reaffirmed its intention to pursue a business combination with Terra Industries Inc.
In a letter to the Agrium board, CF said Agrium’s proposal is opportunistic, and that CF believes it is a transparent attempt to interfere with CF’s proposed business combination with Terra.
“We are deeply disappointed that CF’s board of directors has rejected Agrium’s proposal without even attempting to engage us in exploratory discussions,” said Agrium President and CEO Mike Wilson. “We continue to believe that our proposed transaction is a superb opportunity to create value for both Agrium and CF stockholders – we are motivated by the outstanding long-term prospects of this compelling combination and not, as CF alleges, by a desire to interfere with its attempt to buy Terra Industries. It appears that CF’s board and management concluded that CF’s stockholders would choose Agrium’s offer over CF’s proposed Terra acquisition and, as a result, decided to use an unusual non-voting security to deny their own stockholders a voice in this critical decision. We believe that CF stockholders view receiving a substantial premium from Agrium as a far superior alternative to paying a large premium to Terra stockholders. We expect to achieve approximately $150 million in operating synergies from the combination of Agrium and CF – 50 percent more than what CF has said it expects from a combination with Terra.”
“While our preference is to work together with CF to negotiate a definitive merger agreement, we remain fully committed to acquiring CF and are considering all available options,” Wilson continued. “We intend to commence shortly an exchange offer to acquire all outstanding shares of CF common stock.”
CF sent a letter to Terra reaffirming its interest and saying it would now be prepared to enter into a negotiated merger agreement with Terra on terms that provide certain value assurances to Terra’s stockholders. Specifically, CF would agree to an exchange ratio based on $27.50 for each Terra share, with an exchange ratio of not less than 0.4129 of a CF share and not more than 0.4539 of a CF share. The $27.50 per share represents an almost 70 percent premium to Terra’s stock price before CF made its offer, while peer group stock performance has been essentially flat since that time. While for Terra’s stockholders these terms provide value assurance and the possibility of a higher exchange ratio than the current offer, they also provide CF’s stockholders with the possibility of a lower exchange ratio if CF’s stock performs as CF expects it will. CF said Agrium’s proposal only validates the value and upside potential in the CF stock.
The original CF offer valued Terra at $20 per share (GM Jan. 19, p. 1).
CF noted that Terra’s Schedule 14D-9 raised the issue of whether, given Agrium’s proposal, CF will be able to obtain the stockholder approval required under NYSE rules to issue CF common stock. “While we are confident that the CF Industries stockholders will support a business combination with Terra, we are prepared to address the issue you raised by structuring the transaction so that a vote by the CF Industries stockholders will not be required,” said CF. “We are prepared to enter into a negotiated merger agreement under which we would issue a participating preferred stock that would trade at parity with CF Industries common stock.” CF said the issuance of the participating preferred stock would not require a vote of the CF Industries stockholders under the NYSE rules.
On March 11, Terra said its board unanimously concluded that this most recent version of CF’s proposal continues to run counter to Terra’s strategic objectives, substantially undervalues Terra both absolutely and relative to CF, and would deliver less value to its shareholders than would owning Terra on a stand-alone basis.
On March 12, CF said it filed with the U.S. Securities and Exchange Commission preliminary proxy materials in connection with its nomination of independent directors to replace three members of Terra’s board at Terra’s 2009 annual stockholders meeting. As earlier reported, the three are John Lilly, David Wilson, and Irving Yoskowitz (GM Feb. 9, p. 1).
Terra’s 2009 annual meeting is required under its bylaws to be held not later than May 15.