CF Industries Holdings Inc. said March 29 that its board of directors has recommended that CF stockholders reject Agrium Inc.’s revised offer to acquire all outstanding shares of CF. On March 27, Agrium had increased the cash portion of its offer by $3.30, taking its approximate bid for CF from $72 per share to about $74.90 per share (GM March 30, p. 1).
On March 29, CF said its board concluded that Agrium’s March 27 offer was grossly inadequate, substantially undervalued CF, and was not in the best interests of CF and its stockholders.
“Our board and management team are committed to providing superior value to our stockholders,” said CF Chairman, President, and CEO Stephen Wilson. “We strongly believe that continuing to pursue our long-term strategy, including our proposed business combination with Terra Industries, is the best way to do so. We are confident that both our stockholders and Terra’s stockholders support our proposed business combination. We believe the Terra stockholders will show their support by voting for our proposed slate of directors at Terra’s annual meeting, which is required to be held by May 15th under the Terra by-laws.”
Also, on March 27, Agrium said it was extremely disappointed with CF’s approach to its offer and took the matter directly to CF stockholders, urging them to vote against CF’s three nominees at its upcoming shareholders meeting. Agrium also said CF had done an end-run around shareholders by taking away their ability to vote on a CF-Terra deal.
Agrium President and CEO Mike Wilson told analysts on March 27 that it would not overspend for CF. “We are not going to $100,” he said, referring to CF’s assertions that Agrium could offer a per share price of over $100 with the deal still being accretive to Agrium. Wilson said he did not think there were any unbiased observers who would find the $100 credible. “We’re patient. We are disciplined, and we’re not going to overpay for this. And I am not going to give you a number that we’ll stop at.
“We are going to continue to keep our leverage rate around 40 percent or less, because we have other growth opportunities we’re looking at,” said Wilson.
Wilson said if CF does not accept Agrium’s bid, he assumes their shareholders will put so much pressure on them that they will engage with Agrium. “Our offer is a far better alternative than paying a substantial premium for Terra Industries.”
Wilson said Agrium and CF assets are highly complementary and will create a global leader in crop nutrient production and distribution with nearly $14 billion in net sales, with significant value creation opportunity for both Agrium and CF shareholders. He said with 50 percent of the consideration being offered as stock and the remaining half as cash, it gives CF shareholders the opportunity for long-term value, as well as liquidity for those wishing to sell their shares at an extremely attractive price.
“It is clear that Agrium has a strong record of growth, successful integration of acquisitions, and attainment of synergies,” said Mike Wilson. “In the past five years, Agrium has completed nine acquisitions and invested approximately $3.4 billion, achieving synergies greater than announced and earlier than expected.
“We’ve more than quadrupled our more stable Retail business, taking it from $80 million in annual EBITDA to $560 million last year. We’ve achieved 50 percent higher synergies than originally announced from our Royster-Clark acquisition. We are ahead of schedule in delivering synergies from the UAP acquisition.
“In contrast,” noted Wilson, “with the exception of a single acquisition of approximately $25 million, CF has made no major acquisitions since its IPO and it has no trade record of integrating acquisitions or achieving synergies. Based on public information available to us, we anticipate annual synergies of approximately $150 million to be achieved in three years. This is greater than those contemplated in CF Industries’ proposal to acquire Terra.
“CF is attacking the Agrium offer with selective information and flawed financial analysis,” said Wilson. “While many of CF’s assertions don’t merit a response, we want to touch on some substantive inaccuracies.”
He said the proposal has been well received by CF shareholders and that CF’s share price has increased by more than 30 percent since Agrium announced its offer Feb. 25. While Agrium’s shares initially dropped, they have recovered.
And despite CF’s assertions, Agrium says its Retail business is very stable, with high value and high margins. “The fact is Agrium has had higher average and less volatile gross margins than CF over a five-year timeframe and has traded at higher enterprise value to EBITDA multiple since CF’s IPO in 2005. Simply put, the market continues to endorse Agrium’s diversified model.” He said Retail continues to be significantly more stable than Wholesale.
“Contrary to what CF would have you believe, Agrium has had a successful operating record across the entire agricultural value chain. Since 2005, our nitrogen assets have achieved an average gross margin per ton substantially higher than CF.”
Wilson said the Profertil facility in Argentina is a world-class operation that averaged $100 million in EBITDA for each of the past four years. He noted that the Kenai, Alaska, purchase also included Kennewick, Wash., and Sacramento, Calif., facilities with production capacity of about 600,000 st/y, and they continue to be very profitable. Agrium said its investment in the MOPCO nitrogen plant in Egypt represents one of the lowest cost plants of its kind, with access to key markets in Europe and North and South America.
Agrium noted that while its phosphate business is smaller than CF’s, it sells into a higher priced regional market and has also generated higher average margins than CF.
As to CF’s assertion about Agrium competing with its customers, Wilson said that Agrium Retail is run as a separate business unit. He said last year the unit only purchased 15 percent of its nutrients from Agrium, and that pattern is expected to continue. He said what they buy from Agrium is at full market price. “And so we have a Wholesale business and we have a Retail business and we’ve not experienced any issues as a conflict between our customers.” He said Wholesale’s retail customers will get even better distribution, quality, and service with the combination of Agrium and CF.
Wilson was somewhat hesitant about CF’s pending proposal to build a nitrogen plant in Peru, saying it would be difficult to comment until Agrium has a chance to go in and look more closely at the project. He said it would have to look at the gas and capital contracts, as well as political volatility, “and we would have to put a fairly high hurdle rate given that it’s Peru.”