CF Industries Holdings, Inc. on Oct. 27 sent a letter to the stockholders of Terra Industries Inc. once again urging their vote for CF’s three nominees to Terra’s board of directors. Terra’s annual meeting is scheduled for Nov. 20, 2009, and CF said a vote for its nominees “will voice your support for the proposed business combination with Terra.”
CF reiterated its exchange ratio offer of 0.465 of a CF share for each outstanding Terra share, saying it represents a substantial premium of 35 percent to the unaffected exchange ratio when CF first announced its proposal to acquire Terra last January. CF also used the opportunity to tout its own financial performance for the first three quarters of 2009 while criticizing Terra’s recently released results. CF on Oct. 26 reported an 18 percent drop in net income for the third quarter (see story above), while Terra saw a 72 percent drop in net income for the same period (GM Oct. 26, p. 10).
“While 35 percent is already a very attractive premium, we believe it is actually significantly higher when considering the financial performance of CF Industries and Terra this year,” the letter said. “In the first three quarters of 2009, CF Industries significantly outperformed Terra Industries. As a result, we believe that CF Industries shares would have increased more than Terra shares during 2009 absent any takeover proposals, and that the premium we are offering is meaningfully higher than 35 percent.”
CF also noted again that it was Terra who first approached CF about combining the two companies back in 2004, and said the two have engaged in “multiple conversations” about a business combination since then. Referring to slides from Terra’s own presentation when it first approached CF, CF said Terra’s objective was to create a strong platform for future profit through significant synergies, broad market coverage, substantial market share, product sourcing flexibility for customers, and a platform for growth through future consolidation opportunities.
CF said Terra also emphasized at that time that a combination would create a coast-to-coast marketer of UAN, urea, and ammonia, and would enhance value through a significant customer base, sourcing flexibility, market mass, and synergies in administration, equipment, terminals, and transportation.
“Terra has itself recognized the strategic rationale for combining the two companies,” the letter said. “CF Industries believes that the opportunity to create shareholder value is clear and that both sets of stockholders, boards and management teams understand the compelling strategic rationale of the business combination.”
CF said it has a proven record of creating value for stockholders, and has provided its stockholders with the highest share price appreciation and total shareholder return among public fertilizer companies since its IPO in August 2005 to January 15, 2009. “Building on this strong track record, CF Industries expects to continue to deliver for its stockholders through a business combination with Terra,” the letter said. “You will be stockholders of a company with significant synergy opportunities. We have already clearly identified annual cost synergies of up to $135 million. We agree with Terra’s assessment that there are substantial opportunities for value creation through synergies, and believe that more synergies can be identified once the two companies are combined and work together to run the combination as effectively as possible.”
CF also stressed that the business combination would allow investors in Terra to diversify from a purely nitrogen company “into a strong new position in phosphate,” claiming that its phosphate business “will be a valuable, world-class asset” for the combined company. “Phosphate is a resource available in only a limited number of countries,” the letter said. “We believe that phosphate production is an attractive long-term business and CF Industries is in an excellent position to generate value for stockholders in this segment.”