CF Industries Holdings Inc. said March 2 that it has offered to acquire Terra Industries Inc. for $37.15 in cash and 0.0953 of a share of CF common stock for each Terra share. The offer has a total value of $47.40 per share based on CF’s closing price on Monday, March 1, 2010.
CF had said on Jan. 14, 2010 (GM Jan. 18, p. 1) that it was abandoning its bid for Terra.
On Feb. 15, Yara International ASA’s bid for Terra was announced at $41.10 per share in cash. The Yara deal was valued at $4.1 billion, the CF deal at $4.7 billion.
“It is clear that CF Industries is the best acquirer for Terra given the compelling strategic benefits of the combination, including the substantial synergies only we can achieve together,” said Stephen Wilson, CF chairman, president and CEO. “We withdrew our prior offer because we believed that Terra was unwilling to agree to a sale. Now that Terra is for sale, we have made an offer that is superior to Yara’s substantially lower, highly conditional offer.”
In a letter to the Terra board, CF said that in early January it sought additional information from Terra so that CF could be in a position to increase its offer. CF said Terra responded at the time that it would not supply information because “Terra is not for sale.” CF said that following this response it withdrew its offer and had no further communication with Terra.
“We do not understand how Terra could have entered into an agreement with Yara without giving CF Industries an opportunity to bid on a level playing field,” said Wilson in the letter. “We also do not understand how Terra could have accepted an offer from Yara with a risk-adjusted present value that we believe was not higher than the offer CF Industries had made in December 2009. The value of any offer from Yara must be discounted for the lengthy period to closing, as well as the risk that numerous conditions beyond Terra’s control will not be satisfied, including regulatory, legislative and stockholder approvals.”
CF said it intends to commence an exchange offer for Terra shares that will be scheduled to expire on April 2, 2010. CF says its offer can be accepted quickly and the transaction concluded. CF said following the closing of the transaction, it will effect a public offering of common stock in an amount equal to approximately $1 billion. CF expects the transaction to be significantly accretive to earnings, both before and after such equity issuance.
CF’s offer is subject to Terra terminating its merger agreement with Yara and entering into a merger agreement with CF. CF says it has received $4.05 billion of financing commitments and that the offer is not subject to financing. Morgan Stanley Senior Funding Inc. has committed $2.8 billion, and The Bank of Tokyo-Mitsubishi UFJ Ltd. has committed $1.25 billion.
On March 2, Terra acknowledged the CF offer and said its board will evaluate it in a manner consistent with its duties under applicable Maryland law and the terms of the Yara agreement. Terra said it would have no further comment on the CF proposal until the board has completed this evaluation. Terra noted that the Yara agreement may be terminated under certain circumstances, including if Terra receives a superior proposal and provides advance notice to Yara, and Yara does not match the superior proposal within five business days. If the Yara agreement is terminated under such circumstances, Yara will be entitled to a $123 million break-up fee.
Fertilizer industry reaction to the CF-Terra news was all across the board last week. “Surprise, surprise, surprise,” said one source. Another said it was predictable.
Soon after the Yara offer, many fertilizer industry sources were predicting that CF would have to be more concerned with fending off Agrium Inc. than renewing its efforts for Terra. Last week, some suggested that CF’s new offer was simply a maneuver to slow down Agrium. Ironically, a CF executive spoke on this topic Feb. 25 at the Morgan Stanley Global Basic Materials Conference. “We have never talked about Terra as being a defensive move in the context to Agrium,” Anthony Nocchiero, CF senior vice president and CFO, told analysts at the meeting. “People sometimes forget that we launched on Terra before Agrium launched on us … So, I would have to tell you that the management team and the board never thinks about this in the context of shark repellant.”
Sources last week asked whether Terra could still continue to reject CF if CF’s offer is higher than that from Yara. They noted that under the Yara deal, Terra President and CEO Michael Bennett would head up Yara North America, which would be based in Sioux City. Bennett has been promised an executive position under CF, but Sioux City would not be the headquarters of a merged company. Likewise, sources said higher synergies for a CF-Terra deal, and more overlap between the two companies, would mean more job losses than with a Yara-Terra deal.
And should Terra say yes, what would Yara do? Yara Board Member Frank Anderson was quoted in the Norwegian newspaper Dagens Naeringsliv as stating he doubted Yara would top CF’s offer. In the same article, however, Yara Chairman of the Board Oivind Lund stated that at this time he could not comment on how Yara would react. Yara would have five days to come back with a higher bid.
Yara said last summer that while it was interested in Terra, it did not want to be in the middle of a bidding war. On the other hand, in the past Yara has been willing to pay a high price for what it regarded as premium assets, i.e., the acquisition of Saskferco when the nitrogen market was at its peak in 2008. A surprise to many, the U.S. nitrogen industry is now the beneficiary of what appears to be a long-term supply of relatively low-priced natural gas, and Yara has noted the value of buying nitrogen capacity rather than building it.