All posts by traceybg@gmail.com
CF seeks to acquire Terra for $2.1 B; Terra to evaluate unsolicited proposal
CF Industries Holdings Inc. said late Jan. 15 that it has proposed to acquire all of the outstanding common shares of Terra Industries Inc. in a transaction that would create a leader in the global fertilizer industry.
CF said its board has approved a proposal under which each common share of Terra would be entitled to receive 0.4235 shares of CF. CF says this represents a premium of 34 percent based on the 30-day volume weighted average prices for the shares of the two companies, and a 29 percent premium based on the 10-day volume weighted average. The proposal also represents a 23 percent premium over the closing price of Terra shares on January 15, 2009. The transaction values Terra Industries at $2.1 billion. It values Terra shares at $20 per share.
“The combination of CF Industries with Terra will create a leading fertilizer producer with enhanced ability to compete globally,” said Stephen Wilson, CF chairman, president, and CEO. “North America is an attractive agribusiness market with an ongoing need for strong global players domiciled here. We believe that the companies together will form a stronger, more competitive global player that can service more customers, more efficiently.”
CF said on a pro-forma basis, the combined company will be the largest nitrogen producer in the world among publicly traded companies as measured by production capacity. It said the companies’ complementary footprints will safeguard operating jobs while increasing geographic reach in the important U.S. grain belt, as well as expand sourcing from international locations. CF and Terra together will create a more stable platform for future growth, enhancing the viability and continuity of the North American nitrogen production industry, which has seen rising imports in recent years. Together, CF and Terra would be better positioned for growth with a stronger balance sheet, increased flexibility to access the capital markets, and the enhanced ability to weather difficult market conditions.
CF said the transaction would create significant financial benefits for shareholders of both companies. Beyond the stock premium offered, CF said the value of the enterprise would be increased due to the combination. In addition, CF expects the deal would generate more than $100 million in annual cost synergies from reducing SG&A by combining overlapping corporate functions and optimizing transportation and distribution systems. CF expects the combined company to realize these synergies within two years after the closing of the transaction. The combined company will also benefit from a one-time $30-$60 million release of cash due to inventory reduction. The transaction is expected to be accretive to current CF stockholders in the second year following the close.
On a pro-forma basis, for the last twelve months ended Sept. 30, 2008, the combined company would have had revenues of $6.5 billion and EBITDA of $2.0 billion, before synergies. Nitrogen capacity would have been 6.3 million nutrient tons, and phosphate capacity would have been 2.1 million tons of DAP/MAP.
CF argues that customers will benefit from the combined company’s broader product offerings, enhanced services, and integrated supply and distribution network. In addition, Terra’s customers will have access to CF’s state-of-the-art order management system, PROMISE, and its forward pricing program (FPP) risk management tool.
The proposed transaction is subject to the negotiation of a definitive merger agreement; stockholder approvals from both companies; and the satisfaction of customary closing conditions, including regulatory approvals.
Morgan Stanley and Rothschild are acting as financial advisors, and Skadden, Arps, Slate, Meagher & Flom LLP is acting as legal counsel to CF Industries.
CF sent a letter to Terra officials on Jan. 15 with its proposal, asking for a reply no later than Jan. 30. In the letter, CF said Terra first approached CF several years ago regarding a combination of the two companies. “…We believe that we have developed mutual respect for the two organizations and have both recognized that a combination makes strategic sense,” said Wilson in the letter. He also pointed out the combination offers Terra shareholders important diversification from a single crop nutrient, nitrogen, into a strong new position in phosphate, and participation in and global market insights through CF’s 50 percent interest in Keytrade AG. CF also said it understands that Terra’s debt may need to be refinanced as a result of the combination, and that the proposal is not subject to any financing contingency.
Terra said early Jan. 16 that it has received an unsolicited proposal from CF. Terra said its board of directors, consistent with its fiduciary duties and in consultation with its independent financial and legal advisors, will consider and evaluate the proposal and will pursue the course of action that is in the best interest of Terra and its shareholders. Terra shareholders are advised to take no action at this time pending the review by the Terra board.
Wilson told analysts Jan. 16 that CF shareholders would hold 53 percent of the shares of the new company, versus 47 percent for Terra shareholders.
Wilson was pressed as to why CF made the letter to Terra public without prior negotiations. Wilson said the proposal letter to Terra was a “friendly public initiative,” and that he hoped it would lead to a friendly discussion.
He also encountered analyst concerns regarding whether the deal would gain regulatory approval, with one analyst suggesting that the combination would control some 45-55 percent of U.S. domestic nitrogen production. Wilson countered that the nitrogen market is the most global of the fertilizer markets, and that some 50 percent of U.S. consumption is met by imports. He remained confident the deal could gain approval.
Mosaic layoff of 1,060 potash workers brings Saskatchewan industry total to 2,380
The Mosaic Co. has confirmed that it has sent layoff notices to some 1,060 workers at its Saskatchewan potash mines. Mosaic reported earlier that it planned to cut potash production by 1 million mt by the end of May 2009 (GM Jan. 12, p. 1).
As a result of the Mosaic news, some 2,380 Saskatchewan potash workers now have layoff notices. PotashCorp and Agrium Inc. both made similar announcements in late 2008, with 940 workers for PotashCorp (GM Jan. 5, p. 1) and 380 for Agrium (GM Dec. 15, p. 1).
Mosaic layoff notices have been sent to some 360 hourly employees at the Colonsay mine, to take effect March 8 for an indefinite period. Those miners are members of the United Steel Workers of America. Some 700 layoff notices went to workers at the Esterhazy mine, with layoffs to begin Feb. 15 for renewable two-week periods. Those workers are members of the Communication, Energy and Paperworkers Union of Canada.
Mosaic reiterated that these are layoff notices and could be rescinded should conditions change.
Mosaic has some 1,500 employees in Saskatchewan. Production at Mosaic’s Belle Plaine, Sask., potash mine is not affected.
Russia-Ukraine gas tift continues
The spat between Ukraine and Russia over natural gas shipments is heading for the courts with multiple plaintiffs. The European Commission is now recommending that each European energy company with a contract to receive Russian natural gas sue both the Ukrainian company Naftohaz and the Russian Gazprom for the companies to resolve their disputes. The suits should also ask for compensation resulting from the shutdown of the natural gas pipeline to Europe from Russia, said the EC.
Natural gas from Russia has not moved through Ukraine and into Europe since the beginning of the year. The dispute started when Russia demanded payment of the US$2.4 billion debt Ukraine owed for previous natural gas shipments. By December 2008 Ukraine had paid about $1 billion of the debt and claimed it had an agreement to restructure the rest of the payments in January and February 2009.
Gazprom denies the restructuring agreement existed and demanded US$1.67 billion in back fees and $450 million in fines by the end of the year, or the gas would be turned off. Naftohaz made a payment of $1.5 billion Dec. 30, but because of the holidays the banks were not open and Gazprom did not receive its payment on time.
About the same time, Gazprom said it received a letter from Naftohaz stating that if the natural gas to Ukraine was not reinstated, it would begin confiscating gas bound for Europe in the pipelines passing through Ukraine. Naftohaz and the Ukrainian government deny any such letter was sent.
Besides the past due payments, Gazprom sought a price increase in the gas it delivers to Ukrainian customers. Naftohaz said it would pay US$201/thousand cubic meters, an increase of about US$21. Gazprom wanted US$250, saying Europe was paying US$500/thousand cubic meters.
The two sides could not reach an agreement on the new price, and Gazprom made good on its threat to cut the flow of gas to Ukrainian customers. Gazprom said it would continue to service its European customers through the Ukrainian pipelines, but the cost of servicing the pipeline and flow of the natural gas was in dispute. Ukraine wanted more than Russia said was necessary. At the same time, Gazprom accused the Ukrainians of stealing gas bound for Europe. In the end, Russia turned off the tap.
Under pressure from the European Community, Russia and Ukraine agreed to resume gas operations, with international observers set up along the way to ensure no gas was siphoned off along the way. By Jan. 11 all parties had signed the agreement, but the Ukrainian government added a handwritten note next to its signature referring to an addendum that stated no gas was stolen by Ukrainians and other technical details. The Russians said the addendum was not part of the agreement and refused to honor it. Eventually, the Ukrainians presented the addendum as a separate document.
The Russians claim they tried to send a test flow of natural gas through the pipeline, but the Ukrainians had not opened their end of the pipe. The Ukrainians claim the Russians did not send enough natural gas to maintain the proper pressure in the pipeline.
As of Jan. 13, the Ukrainians have not opened the line to Europe. Gazprom used the move to declare a force majeure. With no gas flowing from Russia to Europe or into Ukraine, homes are denied heating fuel and factories the necessary inputs for production. Bulgarian fertilizer plants closed two weeks ago. Last week OPZ and other major ammonia and urea plants also either extended already planned shutdowns or closed down because of lack of natural gas. Asian sources report that most of the urea and ammonia producers have also declared a force majeure.
The resulting prospective lack of ammonia and urea from Black Sea and Baltic producers is beginning to have an impact on prices.
DOT releases interim rail tank car standards
The Department of Transportation on Jan. 12 released its final rule on interim rail tank car standards, which will be effective March 16, 2009. The rule-making process was observed closely by the fertilizer industry, and recommendations were submitted by The Fertilizer Institute regarding railcar standards for the transportation of anhydrous ammonia and other poison inhalation hazard (PIH) materials.
The final rule requires PIH tank cars to have better puncture resistance from a side impact with a combination of thicker inner shells where the hazmat is held and/or thicker outer jackets, depending on the specific hazmat being transported. In addition, each end of the tank car is to be protected with a full head shield where not already mandated by existing regulations, while strengthened valves, top fittings, and nozzles used to load and unload the tank car are required to prevent a release in a rollover accident.
The new rule also imposes a 50 mph maximum speed restriction on all loaded PIH tank cars, and allows for an increase in the gross weight of the tank car to accommodate the enhanced safety measures. In addition, it requires tank car owners to prioritize the retirement or replacement of older tank cars used in PIH service that were built prior to 1989 with non-normalized steel that may not adequately resist the development of fractures.
U.S. Transportation Secretary Mary E. Peters said the final rule provides an increase in safety over existing rail hazmat tank car designs pending further technological and manufacturing advancements. “Strengthening rail hazmat tank cars will reduce the risk of spills and increase public safety should a train accident occur,” Peters said, noting that adoption of these interim design standards will ensure the ongoing availability of PIH tank cars with improved safety while DOT completes longer-term research, testing, and validation of advanced tank car designs for a more stringent performance-based standard to further increase rail hazmat tank car crashworthiness.
TFI said it is pleased with DOT’s announcement since it allows the continued use of the 112J340 anhydrous ammonia rail tank car, and adopted TFI’s recommendation that an enhanced 400 pound car or a newly constructed 500 pound tank car be permitted as alternative tank cars.
“TFI and the railroads hold a strong record of working together on transportation issues and we were pleased to see many of our comments to DOT taken into consideration,” said TFI President Ford B. West. “TFI and its anhydrous ammonia shipper members support DOT’s efforts for enhanced safety of tank cars, and the anhydrous ammonia industry is committed to doing its part to minimize the occurrence of accidents and to reduce the probability of a release should an accident occur.”
Specifically, TFI submitted a petition to DOT in May 2008 in support of an interim rail tank car in anhydrous ammonia service. In its petition, TFI suggested the retirement of all pre-1989 non-normalized steel cars by Dec. 31, 2010; authorization for use of 112J340 ammonia cars built prior to 2001 until Dec. 31, 2021; authorization for use of 112J340 ammonia cars built after 2001 for a life of 20 years; and authorization for use of a 112J400 pound car enhanced with a thicker jacket for ammonia service beginning Jan. 1, 2009, with a 25-year life from the date of the final rule.
In issuing the interim standards, DOT stated that while it allows the continued use of 112J340 rail tank cars, its rulemaking does not set a definite timeframe for the duration of this decision. DOT notified TFI that a timeline will be addressed in future rulemaking, which will set the final performance standards for tank cars.
“This overall plan is reasonable, makes sound business sense and helps accomplish a smooth transition of the ammonia car fleet,” said West.\
The final rule was issued by the DOT Pipeline and Hazardous Materials Safety Administration in close consultation with the Federal Railroad Administration following a broad and multi-faceted review of virtually all aspects of rail tank car safety. It applies to PIH tank cars built on or after March 16, 2009.
Peters noted that in June 2008, a new rail hazmat routing rule took effect requiring railroads to rigorously analyze and then select the route with the fewest overall safety and security risks. Peters said the hazmat routing rule, combined with the hazmat tank car rule, provides enhanced protection for people living in both large cities and small towns.
Agrium gives plant updates, details inventory write-down
Agrium Inc. said late Jan. 15 that it is in the process of restarting its Fort Saskatchewan nitrogen facility and is resuming full rates for urea production at its other Canadian facilities due to the recent improvement in urea demand. It continues to operate phosphate and potash facilities below full rates.
In the meantime, Agrium confirmed last week that its Borger, Texas, nitrogen plant is completely idled until market conditions improve. Borger ammonia capacity is 490,000 mt/y and urea is 99,000 mt/y.
The Profertil nitrogen facility was returned to production this week after an extended turnaround. Agrium reports that the Argentine government announced this week a price agreement for most crop inputs with key agricultural suppliers, including Profertil and Agroservicios Pampeanos (ASP). The agreement requires future crop input prices to be related to an agreed-upon normalized crop input price or margin, and changes in input prices and margins to occur in direct proportion to changes in crop prices. For Profertil, the corresponding maximum urea price under current crop prices is approximately $390 per mt at the warehouse. The agreement is not expected to have any material impact on the earnings profile for ASP or for Profertil at current world urea prices.
Agrium Inc. said it expects to record a write-down in Retail in the fourth quarter of 2008 of approximately $96-million ($0.41 diluted earnings per share), of which $11-million is for its South American Retail operation and $85-million is for its North American Retail operations. The adjustment to its North America Retail operations is primarily related to the difference in the value between anticipated nutrient sales prices and prices that North America Retail has contracted for prepayments and other committed crop nutrient mt in 2009. Agrium also expects a further $21-million ($0.09 diluted earnings per share) write-down in its Wholesale Purchase For Resale (PFR) business. These adjustments are indicative of the unprecedented volatility in global economic and commodity markets, and the decline in certain nutrient prices since early December 2008, when it issued updated guidance. Agrium does not expect any write-down with respect to manufactured wholesale volumes.
The write-downs of $96-million for Retail and an additional $21-million in PFR were not included in the update to guidance issued December 8, 2008. The December 2008 update to guidance did include a write-down of approximately $90-million for PFR business in North America, South America, and Europe.
CHS 1Q earnings off; $155 M taken for inventory adjustments and impairments
CHS Inc. reported net income of $137.3 million on revenues of $7.33 billion for the first quarter ending Nov. 30, 2008, versus the year-ago $300.9 million and $6.5 billion, respectively. The higher revenues were attributed to higher values for crop nutrients and grain products.
The Ag Business segment, which includes the CHS crop nutrient business, saw a big drop in earnings (income before taxes), to $19.7 million on sales of $4.95 billion from the year-ago $204.7 million and $3.83 billion, respectively. However, the year-ago period included a sale of stock in CF Industries Holdings with a pre-tax gain of $91.7 million.
CHS noted that market prices for crop nutrients fell significantly during the quarter, and that coupled with a wet fall season, the company had higher quantity inventories on hand at the end of the quarter than is typical. In order to reflect net realizable values as of Nov. 30, CHS recorded $84.1 million of lower of cost or market adjustments in the Ag Business related to crop nutrients and feed and farm supplies inventories based on committed sales and current market values. CHS said the share of the adjustment for wholesale crop nutrients was $56.8 million. Crop nutrient values were at $346.7 million as of Nov. 30, compared to the year-ago valuation of $192.8 million.
Wholesale crop nutrient revenues were $633.6 million for the first quarter, up from the year-ago $533.5 million. Of this $100.1 million increase, $310.4 million is due to increased average fertilizer selling prices and $210.3 million is attributable to decreased volumes during the quarter. The average sales price of all fertilizers sold reflected an increase of $326/st (96 percent) over the year-ago quarter. Volumes decreased 39 percent versus the year-ago quarter.
CHS said that Agriliance LLC, the retail chain that it still jointly owns with Lake O’Lakes Inc., had a first quarter net loss of $11.7 million on sales of $96.4 million, versus the year-ago loss of $23.5 million and $210.6 million, respectively.
The CHS Energy segment saw improved earnings to $184.7 million, up from the year-ago $108.5 million, while the Processing segment reported a loss of $52.7 million compared to year-ago earnings of $20.2 million. Also in the Processing segment, CHS recorded a $70.7 million impairment on the value of its ownership in VeraSun Energy Corp., the ethanol producer that is in bankruptcy. This, coupled with the inventory adjustments, brings total company impairments up to $155 million. CHS previously recorded a $71.7 million impairment due to VeraSun in the fourth quarter ending Aug. 31, 2008.
Helena files suit against Mesquite residents
Las Cruces, N.M.-Helena Chemical Co. officials have confirmed the filing of a lawsuit in state district court against residents who are suing over what they claim are health problems caused by the company’s fertilizer warehouse located in the community of Mesquite. Helena spokeswoman Linda Lockett told Green Markets the lawsuit was filed in Third District Court in Las Cruces and will be heard by Chief Judge Jerald Valentine. “I don’t have a copy of the suit,” Lockett reported, “but Helena isn’t commenting on this litigation.” Press reports say that the suit accuses the executive director of the Mesquite Community Action Committee, Arturo Uribe, of libel and slander, naming Uribe, his wife, and their attorney, and claiming that a number of false statements injured the company’s reputation and good standing in the community. One report stated that the Helena suit seeks more than $25,000 and attempts to delve into the personal lives of Uribe and his wife. The Uribes have been very vocal in their criticism of the Helena operations and timed their announcement of their suit to coincide with Helena’s opening its Mesquite plant to public inspection and holding a community meeting in October regarding its environmental efforts. A number of residents of Mesquite and LaMesa joined the Uribes in the lawsuit at that time, alleging that negligence by Helena’s fertilizer blending operations has caused people, including the Uribe’s children, to suffer from severe respiratory problems requiring hospitalization. Helena also has engaged in an ongoing feud with the New Mexico environmental department, which recently assessed the Mesquite facility with a $279,000 fine, charging 11 violations of the state’s air quality regulations. Helena has claimed that the Mesquite plant no longer requires a state air quality permit, a statement that state environmental officials say is nonsense.
Firefighters leery of AN in Arkansas fire
Searcy, Ark.-Searcy firefighters found early on that their hoses weren’t going to be much help battling flames that destroyed a feed and fertilizer warehouse at Caldwell Country Store late Jan. 11. According to the Arkansas Dept. of Emergency Management, the warehouse contained 20 tons of biosolids and another 20 tons of ammonium nitrate. “The fire department responded with a HazMat team and put on water initially, mainly to keep power poles cool, but decided it would have to just let it burn out,” reported ADEM spokesman Tommy Jackson. A large cloud of smoke could be seen from Highway 67-167, and the smell of smoke was detected almost 30 miles away. Jackson said it was feared early on that residents of approximately 100 apartments in the area would have to evacuate because of wind conditions, but it wound up being unnecessary. Battalion Chief Lee Reed told the local press that at first heavy smoke, but no visible flames, allowed firefighters to enter the building and make an unsuccessful initial attack. When it became known about the ammonium nitrate the decision was made to pull the firefighters out of the possible danger zone. “We decided to back off the fire and let it burn up as much of the ammonium nitrate as possible,” Reed said. The cause, which is still under investigation, was also a puzzle to Manager John King. “I’m not sure what started it and they can’t tell yet. I really am scared to say, (but) I don’t think anybody set it.” He said the building and its contents, which also included several tons of feed and two gallons of undetermined chemicals, were a total loss, but were covered by insurance. Caldwell has a feed mill in Rose Bud and seven stores, two of which are located in Searcy and Conway, and also sells feed, animal health supplies, tack, clothing, and boots.
Cargill 2Q earnings up 25 percent
Minneapolis-Cargill Inc. reports that net earnings for the second quarter ending Nov. 30, 2008, were up 25 percent, to $1.19 billion from the year-ago $954 million. During the first six months, Cargill said it earned $2.68 billion, up 43 percent from the year-ago $1.87 billion. As in past quarters, Cargill said that its investment in The Mosaic Co. was a significant contributor to company results. Excluding earnings from that investment, Cargill said its second quarter results were moderately below the year-ago level, and in the first half, just under the same period a year-ago. Despite the global financial crisis, Cargill said that its strong balance sheet allowed uninterrupted access to short-term credit markets.