Agrium Inc. said June 3 that its offer to acquire all of the outstanding shares of CF Industries Holdings Inc., for $40.00 in cash and one common share of Agrium for each CF share, is Agrium’s best and final price absent engagement by CF and demonstration of additional value.
Based on Agrium’s closing stock price on June 2, 2009, the offer has a current value of $89.01 per CF share and represents a premium of 60 percent to CF’s closing price on Feb. 24, 2009, the day before Agrium announced its initial proposal, and 76 percent to the 30-day volume weighted average price through that date.
“Agrium is 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,” said Agrium President and CEO Mike Wilson. “If we receive a compelling majority of shares tendered into our offer, we will continue to press CF to engage.
“Our current offer provides full value for CF shares and is far superior to any alternative articulated by CF, including remaining independent or paying a premium for Terra. We note that the majority of long-term stockholders – including Growmark, the stockholder most familiar with CF – have recently sold CF shares at prices well below our offer. In fact, 14 of CF’s top 15 stockholders prior to our bid in February have dramatically reduced their holdings, a clear signal that they disagree with CF’s views on valuation and are voting with their feet,” Wilson continued.
“If we fail to receive a compelling majority, we will conclude we do not have sufficient support from CF stockholders and will walk from the transaction.”
Agrium has extended the expiration date of the exchange offer until 12:00 midnight, New York City time, on June 22, 2009, from June 15, 2009. As of midnight, New York City time, on June 2, 2009, approximately 1.49 million CF shares had been tendered into the offer. As of March 31, 2009, there were 48.4 million CF shares outstanding.
Agrium’s assertions regarding Growmark Inc. were denied by both CF and Growmark. On June 4, Growmark CFO Jeff Solberg said the company has not sold any shares of CF for nearly one year (when the price exceeded $150 per share) and continues to hold more than 1.5 million shares of CF stock. He said any historical sales of CF stock were the result of a well-considered set of factors relating to the valuation of the company, the industry, the overall stock market, and internal corporate considerations that continue to guide Growmark’s actions. Growmark, which has a seat on the CF board and is a major customer, has recused itself from Agrium-CF deliberations and said it had nothing more to say on the matter.
Agrium noted that while Growmark may not have actually sold the stock, that on May 8, 2009, Growmark filed an SEC Form 144, the Notice of Proposed Sale of Securities, indicating that it planned to sell stock and that the approximate date of the sale of the stock was also May 8. The Form 144 indicated that 1,510,403 shares were tentatively to be sold, with an approximate value of about $75.10 per share. According to the SEC, Form 144 must be filed as notice of the proposed sale of restricted securities or securities held by an affiliate of the issuer in reliance on Rule 144. Notice on the Form is only required when the amount to be sold during any three-month period exceeds 500 shares or units, or has an aggregate sales price in excess of $10,000. The sale must take place within three months of filing the Form and, if the securities have not been sold, an amended notice must be filed.
As a result, it does not necessarily mean that shares will actually be sold. One observer told Green Markets that Growmark was likely just trying to provide some flexibility and keep its options open.
CF also noted last week in a presentation before RiskMetrics Groups ISS Governance Services, a proxy advisory firm, that its largest shareholder, TPG Axon, has increased its CF shares to over 5 percent, which it continues to hold. CF noted that another shareholder, Greenlight Capital, sold its shares prior to the Agrium offer. It said it was the second time that Greenlight has come in and out of CF stock since the IPO, and that each time it made substantial profits.
As to Agrium’s assertion that 14 of CF’s 15 largest shareholders have sold stock, CF reiterated that it has a “solid base of fundamental shareholders.” CF said that it has remained in constant contact with its shareholders, and that shareholders owning a substantial majority of CF stock support the view of CF and its advisors.
CF told RiskMetrics that Agrium’s current offer equates to approximately 6.1 times EBITDA. It said that the most relevant precedent was the Yara International ASA acquisition of GrowHow, which was at 8.2 times EBITDA. Further, CF said nitrogen is a commodity chemical, and that the global average commodity chemical transactions in the past decade have been about 8 times EBITDA. It said currently global unaffected peers are trading at 8.7 times 2009E EBITDA.
In addition, CF noted that a lot has changed since Feb. 24 regarding the share prices of peer companies. It noted that through June 1, the global unaffected peers are up 56 percent; Global Basic Materials, up 54 percent; Global Metals and Mining, up 50 percent; Global Chemicals, up 34 percent; and WTI Oil Spot, up 75 percent.
CF said that as of June 1, CF shares closed at $80.31. Based on the June 1 environment, it believes CF shares would likely settle in the mid-to-upper $70s range if Agrium were to withdraw its offer.
Agrium’s Mike Wilson downplayed the run-up in stock prices, as well as CF’s value minus an Agrium offer, telling analysts June 3 at the Goldman Sachs Basic Materials Conference that Agrium thinks CF is worth $65 per share on an unaffected basis, even with the industry hype. Citing a 59 percent increase in peer company stocks, he said that much of the run-up is due to industry hype and speculation about these and other takeovers. “Apparently BHP is going to buy Mosaic and PCS tomorrow,” he said. “And so you have got a lot of hype on this industry.”
Agrium’s Wilson also reiterated that the Agrium price is fair, especially when compared to the CF price for Terra Industries Inc. “We’re almost 30 percent higher than what they offered Terra … So you can’t say we’re undervaluing you and then turn around and value someone else you’re trying to buy at a lower rate and say why don’t you come to the table.”
Observers last week were wondering if Agrium does indeed throw in the towel with respect to CF, would this mean a full throttle CF battle to take over Terra? On this front, CF said June 3 that it has received a Request for Additional Information (Second Request), from the U.S. Federal Trade Commission in connection with its proposed business combination with Terra. CF said the Second Request is a routine aspect of the regulatory process that extends the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act), during which the FTC is permitted to review the transaction for up to an additional 30 days after CF complies with the Second Request, unless earlier terminated.
“We are pleased that we have been able to narrow the focus of the FTC Staff’s review and look forward to resolving the remaining questions promptly and to moving ahead with this important transaction,” said Stephen Wilson, CF chairman, president and CEO.
CF said by providing information and working cooperatively with the FTC throughout the HSR Act review process over the past 90 days, CF has been able to help the FTC narrow the focus of its review significantly. CF said it looks forward to continuing to cooperate with the FTC and intends to respond expeditiously to the Second Request.
CF remains confident that the transaction will be approved in all relevant jurisdictions.
CF likely sees Terra as even more attractive due to the burgeoning pollution control market, which it told analysts at the Goldman Sachs conference last week could get as big as 3 million st of nitrogen products. “We think it is a large market, and it’s worth attacking,” said Anthony Nocchiero, CF senior vice president and CFO, who cited the primary focus as electrical generation plants and the diesel engine markets. Terra, with its Terra Environmental Technologies unit, is already well entrenched in that market.