Agrium Inc. and CF Industries Holdings Inc. intensified their rhetoric again last week as Agrium’s June 22 deadline for CF shareholders to tender their shares neared. Agrium also ran an ad in The Wall Street Journal June 18, addressing CF stockholders and telling them in bold type that time is running out, that it was their last chance to send a message to the CF board, and that RiskMetrics recommends CF stockholders tender their shares, and tender today – the offer expires June 22. Agrium has said it will walk away from the deal if a significant majority of stockholders do not tender.
As for RiskMetrics Group, an independent proxy voting and corporate governance advisory firm, the squabbling over this issue began June 16, with Agrium saying that RiskMetrics recommended that CF stockholders tender their shares into Agrium’s exchange offer of $40.00 in cash plus one Agrium share per CF share. Based on Agrium’s closing stock price on June 15, 2009, the offer has a current value of $88.20 per CF share and represents a premium of 59 percent to CF’s closing price on Feb. 24, 2009, the day before Agrium announced its initial proposal, and 74 percent to the 30-day volume weighted average price through that date.
“We are pleased that RiskMetrics has recommended that CF stockholders tender their shares into Agrium’s compelling offer,” said Agrium President and CEO Mike Wilson. “RiskMetrics clearly concurs that Agrium’s offer provides a significant premium to CF’s standalone stock price, is in-line with precedent deal valuations and provides CF stockholders with the attractive opportunity to ‘participate in any cycle upside from the higher base provided by the offer premium.'”
Wilson concluded, “Our offer is far superior to any alternative articulated by CF, including remaining independent or paying a premium for Terra. We are prepared to execute immediately a fully financed, binding merger agreement – but CF stockholders must send an unambiguous message to CF’s board by tendering their shares into our offer. We have made our best and final offer – unless CF demonstrates new value. We will continue to press CF if we receive a compelling majority of shares tendered, but we will walk from the transaction if we do not.”
CF quickly responded saying that it remains committed to pursuing its long-term strategy, including its proposed strategic business combination with Terra Industries Inc.
“We are committed to continuing to pursue a business combination with Terra Industries, which we believe will create superior value for CF Industries stockholders and provide a significantly better growth platform than a combination with Agrium,” said Stephen Wilson, chairman, president, and CEO. “We are in the process of complying with a request for additional information from the Federal Trade Commission and are confident that we will receive regulatory clearance in the near-term.”
CF said it has heard a consistent message from its stockholders that Agrium’s offer substantially undervalues CF and that the company’s shares would be trading at least in the mid- to upper-$70’s per share absent an offer from Agrium. In a report released earlier on June 16, CF said RiskMetrics supported this view, with analyses showing unaffected trading prices of $77.49 and $73.56 per share. RiskMetrics went on to say that Agrium “should not interpret a high tender as shareholder support for its current offer.”
“In addition to the clear inadequacy of Agrium’s offer, our board continues to be concerned with a number of risks associated with a potential combination with Agrium, including those related to value and timing of any transaction as a result of the ongoing regulatory review and potential remedies that may be required,” Wilson concluded.
The RiskMetrics report offered a nod to both companies, saying that Agrium, after earlier doubts, has now won the right to “engage” or negotiate with CF. However, it said that most CF shareholders expect a $90-$100 per share price. RiskMetrics is essentially telling the CF board of directors they should now talk to Agrium but they can still “just say no,” if they do not like what they hear. RiskMetrics noted that CF’s defensive rhetoric has gone from calling Agrium’s offer “grossly inadequate” in the earlier offers to the more recent “substantially undervalues.”
“On balance, we conclude that Agrium’s current bid is compelling enough to shift the burden to the CF board to justify its ‘just say no’ defense,” said the report. “While we now believe Agrium has now earned a seat at the negotiating table and that CF should now engage Agrium, we also noted that nearly all CF shareholders to whom we spoke expressed a belief that Agrium, upon engaging CF and conducting due diligence, should sweeten the offer. Based on our conversations with these CF shareholders, it appears that a market clearing offer may lie between $90 and $100 per share.”
RiskMetrics said its survey of CF shareholders revealed a near unanimous decision that Agrium’s current bid is insufficient, with a fair number believing it is in the “ballpark,” while others seek an increase of $5-$12 per share.
RiskMetrics noted that in a Feb. 26 report, JPMorgan estimated the replacement value of CF’s fertilizer assets at $10 billion. At the time, Agrium’s offer of $3.1 billion would have only equated to 31 percent of that.
Since April, RiskMetrics believes CF shareholder sentiment has shifted in favor of engagement. It also believes Agrium has greatly expanded upon its communications with CF shareholders, providing a detailed breakdown of the basis for its bid.
RiskMetrics believes engagement is the more likely scenario, saying Agrium could sweeten the deal and there is little downside to CF as it can continue to “just say no.” Given CF’s defensive arsenal, which RiskMetrics has praised to date, it said this will be the last chance for CF shareholders to weigh in on these issues and help to ensure that CF does not turn down a fair offer from Agrium in order to enter into a less attractive transaction with Terra. RiskMetrics said there is little danger that a high tender result will encourage the CF board to roll over for Agrium, as given its defensive arsenal, Agrium must ultimately win over the CF board.
“Absent new developments, RiskMetrics also said that it is unlikely CF’s current bid for Terra will succeed, given Terra’s vociferous rejection of the offer and its strong defensive profile.”
RiskMetrics noted that there is a great deal of cross-shareholding between Agrium, CF, and Terra. Citing Thomson One data as of March 31, some 70 percent of CF and Terra shareholders overlap, 60 percent of Agrium and CF overlap, and 53 percent of Agrium and Terra overlap.
Contacted again by Green Markets on June 17, CF was sticking by its guns not to engage with Agrium. “To date, the board of directors has determined that the proposed CF Industries/Terra combination represents the best strategy to create value for holders of the combined company and that, absent a compelling offer from Agrium, our priority should be CF/TRA,” said CF Director of Public and Investor Relations Charles Nekvasil. “The board is very engaged and, as Steve Wilson has noted on numerous occasions, ‘fiercely independent.’”
Another contentious round of words developed between Agrium and CF June 18, after CF made new filings with the Securities and Exchange Commission alleging possible antitrust problems with an Agrium-CF deal. CF said that based on its ongoing discussions with U.S. and Canadian regulatory authorities and the advice of antitrust counsel, it believes there are serious antitrust issues with such a deal that could substantially delay or prevent Agrium from consummating the offer. For example, CF noted that Agrium and CF are the only two significant nitrogen manufacturers in Alberta, Canada. It said Agrium is by far the largest producer and distributor of anhydrous ammonia and urea in Alberta, with CF as its only significant rival.
CF also believes that it and Agrium are two of very few producers and distributors of ammonia and urea in Saskatchewan and Manitoba.
And unlike Terra, which only has one ammonia distribution terminal in the Corn Belt, CF said Agrium is a significant competitor with CF in the sale and distribution of direct application ammonia in the Corn Belt and Northern Plains. CF estimates that Agrium has the third largest distribution network in the Corn Belt, with many terminals located in proximity to CF terminals. In addition, CF said Agrium and CF are the only two operators of ammonia terminals in North Dakota and an isolated area of the Pacific Northwest.
As a result, CF said the Agrium transaction is likely to continue to be subject to intensive scrutiny from government antitrust authorities in both countries, and in the absence of divestitures of significant manufacturing and distribution assets, could result in antitrust litigation to block the offer. CF also noted that on May 27 Agrium withdrew its HSR Form originally filed with the Department of Justice and the FTC on March 27, and re-filed with the FTC on April 29. CF said according to publically available information, Agrium has not yet filed the new necessary HSR Act notification.
By contrast, CF said that the FTC second request for information from CF about the Terra deal (GM June 8, p. 1) was narrowly focused on the distribution of ammonia for nonagricultural use in certain limited circumstances, a business that represented less than 1 percent of CF’s 2008 total revenues. CF said it expects to promptly respond to the request and continue to work cooperatively with the FTC to resolve the remaining issues expeditiously.
Agrium said on June 18 that CF has seriously misrepresented the status and character of the antitrust review of Agrium’s proposed acquisition of CF, further supporting its concerns that CF is not acting in the best interests of its stockholders.
Agrium and its counsel have been in close communication with the relevant antitrust authorities in Canada and the U.S. and are confident that there are no material impediments to closing an Agrium/CF transaction, nor are there expected to be any material delays in closing as a result of regulatory review.
Agrium said the waiting period under relevant Canadian law expired on March 23, 2009. While Agrium and its antitrust counsel continue discussions with the Canadian Competition Bureau, Agrium’s antitrust counsel is of the view that no further Canadian competition approvals under Canadian law are required to legally close the transaction today.
Agrium said it will re-file its HSR Form with the FTC once it completes its ongoing discussions with the FTC, which the company believes can be satisfactorily concluded in short order.