CF Industries Holdings Inc. said Sept. 28 that it has acquired approximately 7 percent of Terra Industries Inc. in the open market over the past two weeks. CF has purchased 6,985,048 shares out of 99,786,406 outstanding at a cost of $247 million and an approximate average price of $35.36 per share. Shares were purchased between Sept. 10-25 and ranged from $31.42 to $37.17. CF also announced that it has sent a merger agreement to Terra detailing the terms of its proposed business combination.
“Our proposal provides a very significant premium to Terra stockholders, which is above historical premiums for stock transactions,” said Stephen Wilson, CF chairman, president, and CEO. “Terra stockholders will have significant ownership in the combined company and share in real and substantial synergies. Our acquisition of 7 percent of Terra further demonstrates our commitment to the business combination. We are confident that Terra and CF Industries stockholders support this business combination and that both sets of stockholders recognize its strategic merits.”
The merger agreement is very similar to past proposals, with a few changes. The exchange ratio is still 0.465 of a share of CF for each share of Terra, a 35 percent premium. The 0.465 exchange ratio would be adjusted upon declaration by Terra of its announced $7.50 per share dividend, based on the average trading price of CF shares during a period prior to the closing. Five million Contingent Future Shares would be distributed to CF stockholders, which would convert based on CF stock trading above $125 a share, increased from $115 a share to reflect the overall increase in the market. Stockholder approvals from both Terra and CF would be required, unless Terra elects not to require CF stockholder approval by structuring the transaction to include CF preferred stock. There would not be any “break-up” fee. There would not be any condition relating to U.S. or Canadian antitrust regulatory approvals, since CF has satisfied these regulatory conditions regarding the combination.
Terra said Oct. 1 that its board of directors, with the assistance of its financial and legal advisors, has unanimously concluded that the Sept. 28 proposal is not in the best interests of Terra or Terra’s shareholders.
“Over the last nine months, our board has reviewed five proposals from CF – and each time the board has unanimously determined that a combination of our companies lacks compelling industrial logic and runs counter to Terra’s strategic objectives,” said Terra President and CEO Michael Bennett. “Terra has focused on building upon our considerable strengths as a ‘pure play’ nitrogen company. A combination with CF would threaten the value we believe we will deliver through the continued execution of our strategy.”
“We believe that CF’s proposal is not strategically attractive, and fails to appropriately value Terra either on an absolute or relative basis with CF,” said Henry Slack, Terra’s chairman of the board. “In addition, we believe that the pending offer from Agrium creates enormous uncertainty both as to how to value CF’s acquisition currency, which we believe is inflated as a result of Agrium’s premium bid to acquire CF, and because we believe that CF shareholders are likely to prefer an Agrium transaction if they are given a choice.”
Agrium Inc., which is seeking to buy CF, has a toe-hold in CF, having bought 2.57 percent of the company in February (GM March 30, p. 1).
Terra says none of the proposals that CF has made to the Terra board over the last nine months have shown any material improvement over the initial unsolicited offer that CF launched on Jan. 15, 2009. At the same time, Terra has maintained its emphasis on delivering shareholder value, returning 35 percent of net income to shareholders over the past three years. Last week, Terra also announced plans to pay a special cash dividend of $7.50 per share later this year (GM Sept. 28, p. 1). Terra noted that CF will adjust its price downward if Terra proceeds with this special cash dividend.
Terra reiterated that it has spent much of the last seven years developing its environmental services business in both stationary and automotive markets to diversify its customer base outside of core agricultural markets. It fears a combination of CF’s business with Terra may jeopardize the focus necessary to grow this business.
Terra said under the proposed deal, while it would contribute approximately 59 percent of the nitrogen results of the combined entity (based on full year 2008 results), Terra shareholders would receive only 48.5 percent of the equity pre-dividend, reduced to approximately 43.2 percent post-dividend (based on CF’s stock price at September 25th). It also says CF’s proposed Contingent Future Shares proposal has the sole purpose of clawing back consideration from Terra shareholders, and could result in an actual exchange ratio of only 0.4224 CF shares per Terra share, or 46.1 percent of the combined company (reduced to approximately 40.9 percent post-dividend, based on CF’s September 25 stock price). It says this is lower than CF’s original unsolicited bid in mid-January.
Terra also noted that CF has terminated its exchange offer for Terra, and its merger proposal is not a binding offer to Terra or its shareholders.