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Agrium increases offer for CF; hedge fund pays $131.6 M for stake in Terra

Featured, News

Agrium Inc. said May 11 that it is substantially increasing its exchange offer to acquire all of the outstanding shares of CF Industries Holdings, Inc. to $85.20 per CF share based on Agrium’s closing stock price on May 8, 2009 ($4.1 billion total). Under the revised terms, CF stockholders would receive $40.00 in cash, an increase of $5.00, or 14.3 percent, in the cash consideration, and one common share of Agrium for each CF share. The increased offer represents a premium of 53 percent to CF’s closing price on Feb. 24, 2009, the day before Agrium announced its initial proposal, and 68 percent to the previous 30-day volume weighted average price.

“This substantial increase in cash, along with Agrium’s strong and diversified business profile, provides CF stockholders with a very attractive opportunity and reaffirms our commitment to acquiring CF,” said Agrium President and CEO Mike Wilson. “Given an increase of over 25 percent in the cash component since our initial offer, we believe more than ever that our bid delivers far superior value for CF stockholders compared with any alternatives articulated by CF, including remaining independent or paying a premium for Terra Industries.”

“As part of our continuing efforts to negotiate a mutually beneficial transaction with CF, we again attempted in recent days to meet with CF’s management and financial advisors to discuss a transaction at a substantially higher price. CF has repeatedly rebuffed our efforts to meet, leaving us no choice but to take our increased offer directly to CF stockholders. It is time for CF stockholders to tell the CF board to come to the table.”

Agrium’s offer is not subject to a financing condition. Agrium says it has sufficient cash resources and committed financing underwritten by Royal Bank of Canada and The Bank of Nova Scotia to fund the cash portion of the offer.

Agrium also announced that it has extended the expiration date of the exchange offer until 12:00 midnight, New York City time, June 15, 2009. The exchange offer was previously set to expire at 12:00 midnight, New York City time, on Tuesday, May 19, 2009.

As of midnight, New York City time, on May 8, 2009, Agrium said approximately 1.27 million shares of common stock of CF had been tendered in and not withdrawn from the exchange offer.

On May 11, CF confirmed that it had received another revised proposal from Agrium. It said its board of directors will evaluate the revised proposal carefully in the context of CF’s strategic plans to create shareholder value, including its proposed business combination with Terra.

CF noted that since Feb. 24, the day before Agrium made its initial offer, there has been an increase of 31.5 percent in the average stock price for the peer group. Agrium’s new proposal has a nominal value of $85.20 per share, which is an increase of 18.3 percent over the $72 per share nominal value of its initial offer. With its latest revision, Agrium has changed its initial offer by increasing the cash portion by a total of $8.30 per share, or 11.5 percent of the nominal value of that offer, according to CF.

By Friday morning, May 15, there had been no word from CF accepting or rejecting Agrium’s May 11 offer, which in itself was news. CF rejected Agrium’s last offer on March 29 as “grossly inadequate” soon after it was made on March 27. This may indicate CF is more serious about this offer. One source told Green Markets last week that more cash was attractive and it might be making management think a little harder.

Still, Agrium’s Mike Wilson was quoted after this past week’s Agrium shareholders meeting as telling the Canadian press that an Agrium-CF deal was far from certain. He cautioned that even if Agrium had 51 percent of the support of CF shareholders, that that would not necessarily bring CF management to the table.

In the meantime, on May 8 Terra filed proxy information for a shareholders meeting with the Securities and Exchange Commission. However, it left the date of the shareholders meeting blank. As of May 14, the company said it had not set the date. Conceivably, under its updated bylaws it could wait until Dec. 31, 2009, to have its meeting. CF is hoping to elect three of its own candidates to the Terra eight member board at the shareholders meeting.

In other Terra news, on May 11, SAC Capital Advisors and affiliates associated with hedge fund investor Steven Cohen filed a Form SC 13D with the SEC indicating that it now owns 5.2 percent of Terra. According to the form, the group expended $131.6 million to buy 5,150,500, or 5.2 percent, of Terra’s common shares. The group said the purchase was for investment purposes and not with the purpose nor with the effect of changing or influencing the control or management of Terra and without any agreement with any third party to act to take over Terra.

Most of the Cohen shares were purchased this year, according to Barron’s, which put SAC’s fourth quarter 2008 holding in Terra at only 380,200 shares.

SAC is a $16 billion, 800 employee group of hedge funds founded by Cohen in 1992. It is incorporated in Anguilla, British West Indies, and has offices in Stamford, Conn., and New York City, with satellite offices around the world. According to its website, it began with 9 employees and $25 million in assets under management. The company has invested in other fertilizer companies in the past, including The Mosaic Co.

LSB 1Q net income up on sales decline; UAN volumes off, AN up in 1Q

Ammonium Nitrate, Featured, News, UAN

LSB Industries Inc. reported a 7.7 percent increase in net income for the first quarter ending March 31, 2009, despite the global economic downturn. Net income was $11.7 million ($.51 per diluted share) on sales of $150.2 million, versus the year-ago $10.9 million ($.46 per share) and $160.4 million.

LSB Chairman and CEO Jack Golsen noted that both its Chemical and Climate Control businesses turned in very respectable performances and are on track to achieve long-term growth. In addition, he said the company continued to improve its balance sheet by reducing long-term debt and increasing cash and stockholders’ equity. LSB purchased $5.7 million of its debentures that were due 2012 at a discount to face value.

“Although we had a great first quarter, we see recession related softening of the markets we serve,” said Golsen. “Construction activity is down and we expect sales of our Climate Control business products to be lower this year than in 2008, with the possible exception of our geothermal heat pumps. Lower sales prices of our Chemical business products will also continue to impact our revenues. Despite this, we continue to invest in the areas that we believe have long-term strategic growth potential for LSB.” LSB is restarting its Pryor, Okla., plant in the third quarter, with Koch Nitrogen Co. taking the offtake production (GM May 11, p. 1).

The Chemical business had first-quarter operating income of $12.6 million on sales of $74.5 million, versus the year-ago $12.1 million and $91.3 million, respectively. Gross profits were $17.1 million, up from $15.3 million.

The company said $2.5 million of Chemical profit margin in excess of current market prices was due to firm sales price commitments made in 2008, when prices were higher than in 2009. The company also earned $2.2 million from the recovery of precious metals used in the Chemical business as catalysts. The business lost $1.6 million on natural gas and ammonia hedge contracts, compared to gains of $600,000 in the year-ago quarter.

First-quarter Chemical profits were impacted by $2 million spent in the first quarter to bring the Pryor Chemical Co. nitrogen plant up; $421,000 was spent on the Pryor project in the year-ago quarter. The company said current startup expense at Pryor is about $1 million per month, and it expects the remaining startup costs after March 31, 2009, to be $7-$9 million. It expects to spend another $5-$6 million for capital equipment to complete the start-up.

LSB expects the Pryor plant to initially produce 325,000 st/y of UAN and 35,000 st/y of anhydrous ammonia. It said the Koch contract is for a take-or-pay fixed volume at market price. “At current market prices we estimate an average net sales price per ton of UAN to range from approximately $175 per ton to $185 per ton,” said Golsen. “Remember, this will definitely change over time as market conditions change.” He added that LSB is considering the addition of other industrial products at Pryor, and is discussing this with industrial customers.

The dip in Chemical sales was attributed to lower selling prices caused by the steep decline in worldwide commodity prices, coupled with lower tons shipped of UAN and most industrial and mining products, offset partially by higher tons shipped of ammonium nitrate.

LSB said UAN tons were down due to high inventory levels in the distribution chain and less than optimum weather conditions, as well as fewer acres of wheat being planted than last year. Lower shipments of industrial and mining products were due to generally lower demand for industrial products because of the economic downturn.

Chemical agricultural sales were $32.8 million, 5 percent lower than the year-ago period. UAN shipments from the Cherokee, Ala., plant were 39 percent lower than the year-ago period, and revenues decreased 49 percent. “During the past year, total imports and domestic production were approximately 1.5 million tons too high for the total market,” said Barry Golsen, LSB president and vice chairman.

Ag grade AN from the El Dorado, Ark., plant saw a 36.4 percent increase in revenues, reflecting higher tons shipped, but lower sales prices per ton. Tons shipped were up 80.1 percent over the first quarter 2008.

This year LSB expects fewer AN imports, making the fundamentals more favorable to U.S. producers. The company expects to run its ag grade AN at full production through the spring season, and put current AN pricing at the $250/st FOB production point.

As for its industrial chemical products, LSB said those sales were $25.2 million in the first quarter, down 32 percent versus a year ago. It is experiencing softer demand and prices.

Most of the Chemical business is industrial and mining sales, which were 63 percent of the total chemical sales during 2008. About 85 percent of these are sold pursuant to agreements that have either a minimum purchase requirement or a fixed total contract profit irrespective of the volume taken by the customer. Therefore, LSB is somewhat insulated from a potential downturn in demand for industrial products.

LSB also noted that its input costs – natural gas for Cherokee and anhydrous ammonia for El Dorado – sank in the first quarter. It said that approximately one-half of El Dorado sales are to customers who accept the cost of ammonia as a pass through.

Climate Control operating income was off slightly, to $9 million on sales of $72 million from the year-ago $9.3 million and $66.3 million. Gross profits were up, at $22.4 million from $21.5 million. While the company is concerned over the economic downturn, there are some pluses: some of its large industrial customers have minimum purchase contracts; the national stimulus package could boost sales for the Climate Control business, as billions will be spent to modernize federal buildings; and a new 30 percent tax credit should aid the sales of residential geothermal heat pumps.

Financier joins Potash One as chairman; company upgrades projections

News, Potash

International financier Robert Friedland has agreed to become chairman of the board of Potash One. He will advise the company on its selection of strategic financing partners to develop Potash One’s potash fertilizer resources in Saskatchewan. In conjunction with Friedland’s appointment, his Singapore-based venture capital company, Ivanhoe Capital Pte. Ltd., will work under a non-exclusive contract to introduce Asia-based investors to Potash One. Potash One’s portfolio of exploration permits covers a total of 515,000 acres in Saskatchewan’s potash-rich basin northwest of Regina, which presently supplies approximately one-third of the global demand for this essential food-growing nutrient. Potash One’s initial focus is on the completion of a definitive feasibility study prior to arranging financing to construct a world-scale potash mine utilizing in-situ solution mining technology for the recovery of potash on the company’s Legacy Project.

Potash One says Friedland has been developing business links in Greater China and the Asia Pacific region for the past 25 years. He is chairman of Ivanhoe Capital Corp., his family’s private company, which specializes in venture capital and project financing from bases in Singapore and Beijing. With his leadership, Ivanhoe executives and affiliated benefiting companies have raised several billion dollars on international capital markets since 1993 to support a variety of natural resources, energy, and technology companies.

Friedland is founder and Executive Chairman of Ivanhoe Mines, a Canadian public company whose shares trade on the New York, NASDAQ, and TSX exchanges, and co-founder, executive chairman, president, and CEO of Ivanhoe Energy, an established oil and gas producer that is developing heavy-oil projects in Canada and Ecuador. Ivanhoe Energy is listed on NASDAQ and the Toronto Stock Exchange. Friedland is also co-chairman of Sunwing Energy, which is Ivanhoe Energy’s operating subsidiary in China and Southeast Asia.

Potash One also announced that Glen MacDonald has resigned as director, effective May 12. He has been on the board since 2003. David Berg, former board chairman, will continue as a director.

On May 14 Potash One announced that it has significantly increased the potash resource estimate on the company’s Legacy Project, a planned solution mine in Saskatchewan, Canada, based on an updated technical report prepared pursuant to NI 43-101. The report expands and upgrades the estimated resources on the 97,240-acre project to the following new levels: 29 million mt of measured potash resource; 222 million mt of indicated potash resource; and 852 million mt of inferred potash resource.

“The updated measured and indicated resource estimate provides a sufficient potash resource foundation for a pre-feasibility study based on a projected production rate of 2.5 million mt per year,” said Paul Matysek, Potash One president and CEO. “Subject to financing and a successful feasibility study, the Legacy Project could enter the potash marketplace as early as late 2013 and be the world’s first greenfield potash mine since 1987.”

Emotional demand destruction impacting potash market, says Intrepid

News, Potash

A 53.5 percent drop in company potash volumes during the first quarter (GM May 11, p. 10) was due in part to emotional demand destruction, as well as non-traditional distributors, according to Intrepid Potash Inc. executives in their earnings call May 8.

“This year, at today’s potash prices, today’s corn prices, he (the farmer) can achieve a two and a half to three times return on his potash investment,” said Robert Jornayvaz, Intrepid chairman and CEO. “So what we’re seeing is what I’ve referred to before as emotional demand destruction, not economic demand destruction. We really try to differentiate between those two.”

Jornayvaz said the company has talked to a lot of farmers and is hearing a lot more emotional frustration at the price of potash than good economics. He said farmers are not being rational.

As for inventory levels, Jornayvaz said Intrepid is seeing high inventories concentrated on the upper river, “where we have some non-traditional potash players in the market?Ǫthat have some holdover tons.” He added that inventories are very, very low in the Pacific Northwest, and that there are low levels on the lower river. “What we’re seeing is some of those non-traditional potash distributors with tons on the upper river, are impacting the rest of the market around the U.S.” He also noted very disparate pricing throughout the U.S.

“The destocking process just needs to happen,” said R.L. Moore, senior vice president of marketing and sales, “so that dealers and non-traditional potash distributors sell through their inventory, at which point Intrepid as a producer can get back to selling product in a more rational historical volume at true market prices.” He estimated that there are between 650-700,000 st of potash in inventory up and down the river, and that doesn’t include product in producer warehouses. Moore said inventories are decreasing. He said May 8 that the company had seen about a 23 percent drop in inventories in the recent two-week period from where they were in the middle of April.

Asked about river potash barges selling below $600/st, Jornayvaz said Intrepid is not going to compete with these non-traditional distributors at the prices right now in a downward spiral market. He said it was important to look at the math. “If you look at the tonnages that were sold into the U.S. by the various potash producers in the first quarter, you look at the inventory that is in the system…and you begin to see that any demand return to more normal profiles, what’s out there is going to get used up very, very quickly.”

Jornayvaz also said Intrepid is seeing product come off the river for re-export to the Caribbean and Brazil.

Moore said that industrial demand for standard product remains weak, and that it is highly affected by the oil and gas rig count. “Given the ongoing weakness in oil and gas prices, the likelihood of a meaningful recovery in 2009 for the industrial market remains remote.” Industrial potash sales were put at 22 percent in the first quarter 2009, versus 29 percent for the year-ago quarter.

On the positive side, Jornayvaz said that during the first quarter Intrepid realized the best net sales price per ton of potash amongst the North American producers.

The company is projecting annual potash production to be below 600,000 st in 2009. It was 836,000 st in 2008.

Jornayvaz was hesitant to give a prediction on how low U.S. potash consumption would be in the current fertilizer year, but did say “we’re looking at very, very low numbers,” and that they would be “significantly lower than it’s ever been historically.” Still, the company reiterated in its earnings release that the country has a 25 year average of 10 million st/y of potash consumption, and that consumption would rebound.

TFI responds to climate change report

News

The Fertilizer Institute has been responding to a report released May 13 by the Pew Center on the competitiveness impacts of potential climate change policies. In summary, says TFI, the report states that the impacts of a cap and trade policy would be limited to energy-intensive industries, including phosphatic and nitrogenous fertilizers (not specifically mentioned in the report, but referenced in the appendix). The reports also “finds” that energy-intensive industries would only lose one percent of production to imports, assuming a CO2 cost of $15/ton and no equivalent carbon policies in other countries. TFI says the report findings indicate that most of the projected economic impact of cap and trade policy would result from a move by consumers towards less emissions-intensive products rather than an increase in imports or a shift of jobs or production overseas.

TFI said the authors conclude that the projected impacts of a cap and trade policy can be addressed through policies targeted to energy-intensive sectors. They outline a range of policy options, including compensating energy-intensive sectors covered by a mandatory cap for their regulatory costs; excluding those sectors from the cap and trade program; and using border adjustment measures to equalize costs for domestic and imported energy-intensive goods.

TFI responded to media inquiries regarding the findings of the report by emphasizing the following talking points.

  1. As an energy-intensive industry that has already achieved tremendous efficiencies due to the high cost of natural gas, the industry is close to a theoretical maximum in energy efficiency that is limited by the laws of chemistry.
  2. Any argument about cap and trade policy’s potential to decrease demand for a product instead of driving up imports does not apply to fertilizers, as fertilizers are a necessary tool in food production that farmers cannot do without. Specifically, TFI pointed to level fertilizer use trends and the great increases in fertilizer use efficiency that U.S. farmers have already achieved.
  3. Losing the remaining U.S. fertilizer production to imported products is equivalent to the U.S. outsourcing its food production to many of the same countries from which we are seeking to become energy independent.

REMC has record April results, increases FY EBITDA guidance to $65 M

News

Rentech Inc. reported that its nitrogen division, Rentech Energy Midwest Corp. (REMC), had record shipments, revenue, and profits in April. For fiscal year 2009 through April, unaudited revenue and profits for REMC were $120.3 million, up from $89.1 million in the year-ago period, representing a 35 percent increase.

Much of REMC’s revenues come from a ten-year distribution agreement it has with Agrium Inc., which formerly owned the East Dubuque, Ill., nitrogen plant. For the six months ended March 31, 2009 and 2008, the agreement accounted for 84 and 82 percent, respectively, of consolidated net revenues from continuing operations. As of March 31, 2009, and Sept. 30, 2008, 78 percent and 88 percent, respectively, of the total consolidated accounts receivable balance of the company was represented by amounts due from Agrium. REMC pays commissions to Agrium not to exceed $5 million per year.

Nitrogen tonnage shipped in the second quarter was 65,000 st, down from the year-ago 103,000 st, according to Rentech. Six-month tonnage was 180,000 st, down from 274,000 st.

Due to the seasonality, the significant pre-sales of fertilizer, and strong April results, Rentech does not expect the weak second quarter results to be indicative of results for the full year. In fact, Rentech has increased its guidance for EBITDA at REMC for fiscal 2009 to $65 million from previous guidance of well in excess of $50 million. In addition to strong April sales, other positives included significant pre-sales of fertilizer products, natural gas prices below those budgeted, and nitrogen demand driven by continued strong prospects for planted corn acreage. Rentech also increased its consolidated EBITDA guidance for fiscal year 2009 to $15 million, compared to prior guidance of positive EBITDA.

Overall, Rentech reported a net loss of $16.5 million ($.10 per diluted share) for the first quarter ending March 31, 2009, on sales of $16.8 million, versus the year-ago loss of $22.8 million ($.14 per share) and $28.5 million, respectively. The company had a gross loss of $3 million during the quarter, compared to year-ago gross profit of $7.9 million.

Six-month net losses were $20.9 million ($.13 per share) on sales of $66.9 million, versus the year-ago loss of $46.2 million and sales of $76 million. Six-month gross profits were $6.6 million, versus the year-ago $18.2 million.

Rentech traditionally pumps its cash flow into its energy technology business. On May 11, it announced a plan to build a plant in Rialto, Calif., for the production of ultra-clean synthetic fuels and electric power from renewable waste biomass feedstocks. The Rialto Renewable Energy Center (Rialto Project) is designed to produce approximately 600 barrels per day of pure renewable synthetic fuels and export approximately 35 megawatts of renewable electric power that is expected to qualify under California’s Renewable Portfolio Standard (RPS) program, which requires utilities to increase the amount of electric power they sell from qualified renewable-energy resources. The plant will be capable of providing enough electricity for approximately 30,000 homes.

Rentech said RenDieselTM, the renewable synthetic diesel to be produced at the facility, meets all applicable fuels standards, is compatible with existing engines and pipelines, and burns cleanly, with emissions of particulates and other regulated pollutants significantly lower than the emissions from the combustion of CARB ultra-low sulfur diesel.

The carbon footprint of the plant is designed to be near zero, as the fuels and power would be produced only from renewable feedstocks. The low carbon footprint of RenDieselTM would help the transportation sector meet targets established by the Low Carbon Fuel Standard Executive Order 1-S-07 to reduce the carbon intensity of transportation fuels by 2020.

Rentech has entered into a licensing agreement with SilvaGas Corp. for biomass gasification technology for the Rialto facility. Between 1998 and 2001, a 400-ton-per-day plant using the SilvaGas biomass gasification technology successfully operated in Burlington, Vermont, producing synthesis gas (syngas) from wood-based biomass in a series of operating campaigns. That plant was built in partnership with the U.S. Department of Energy, Battelle Columbus Laboratory, and the National Renewable Energy Laboratory (NREL).

Rentech’s proprietary technology for the conditioning and clean-up of syngas will provide the next critical link in the technology chain after gasification. The conditioned syngas will be converted by the Rentech Process in a commercial scale reactor to finished, ultra-clean products, such as synthetic diesel and naphtha, using upgrading technologies under an alliance between Rentech and UOP, a Honeywell Company. Renewable electric power will be produced at the facility by using conventional high-efficiency gas turbine technology. The power is anticipated to be sold to local utilities under the California RPS program.

Rentech has engaged Jacobs Engineering Group Inc. to conduct the feasibility engineering phase of the project, which is expected to be completed over the next several months.

Rentech has an exclusive option on a site for the Rialto Project within the proposed Rialto Eco-Industrial Park, which is located adjacent to an existing City of Rialto Wastewater Treatment Plant and EnerTech Environmental Regional Bio-Solids Processing Facility. The location allows the proposed Rialto facility to take advantage of established infrastructure, including access to water, wastewater disposal, and zoning.

The primary feedstock for the Rialto Project will be urban woody green waste such as yard clippings, for which Rentech is currently negotiating supply agreements. The location of the project will provide local green waste haulers with a cost-effective alternative to increasingly scarce landfills for the disposal of woody green waste. The plant is designed to also use bio-solids for a portion of the feedstock, which is expected to be provided under a supply agreement with EnerTech Environmental.

Construction of the Rialto facility is expected to create approximately 250 jobs, with at least 55 permanent jobs during operation, based on the preliminary design work completed to date.

“Our technology portfolio allows us the feedstock flexibility to produce clean synthetic fuels from biomass, or to use fossil resources in the cleanest ways, supporting the spectrum of the Obama Administration’s initiatives for domestic energy production,” said Doug Miller, Rentech vice president of renewable energy. “We expect the Rialto Project to be the prototype for many waste-to-fuels projects for Rentech. These projects are being designed at smaller scale than fossil-based projects, and feedstock costs are low or negative, resulting in significant potential returns on investment.”

Despite all this news, one analyst lamented to management in the company’s earnings call that the market seems totally unimpressed by Rentech’s news over the past couple of days, and the stock continues to trade at $.67 per share. The analyst was also skeptical of the company’s March 30 announcement about the possibility of selling $100 million worth of stock, since that action could dilute current stock value.

Rentech CEO and President D. Hunt Ramsbottom responded that in light of the global economic crisis, major projects have been cancelled around the world or put on hold. “So the fact that we’re actually here and putting a project out in the marketplace, I think our shareholders should be pleased.”

A private investor, weighing in on the call, said that Rentech’s stock should be trading at $2.00 per share based on REMC’s $65 million EBITDA, especially when compared to fertilizer industry mergers that are occurring in the marketplace.

Rentech announced March 30 that it filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission to replace its existing shelf registration, which was expiring. The new registration, if declared effective by the SEC, would allow the company to sell up to $100 million of various types of securities in one or more offerings. Rentech said the use of potential future proceeds from the sale of securities could enable it to accelerate the development of the company’s planned renewable and fossil synthetic fuels facilities. However, Rentech says it has no current agreements, plans, or discussions to offer any of the shares covered under the Form S-3 for sale.