Terra Industries Inc. said early Jan. 28 that its board of directors has unanimously concluded that the Jan. 15, 2009, unsolicited proposal from CF Industries Holdings Inc. (GM Jan. 19, p. 1) is not in the best interests of Terra and Terra’s shareholders.
In a letter to CF chairman, president, and CEO Stephen Wilson, the Terra board said that while it was perplexed by CF’s decision to make a public approach that is conditioned on and subject to due diligence, it has nonetheless examined thoroughly the full range of strategic, industrial, financial, and legal aspects of the combination proposed.
“We concluded that your proposal does not present a compelling case to create additional value for the shareholders of either company, and that it substantially undervalues Terra on an absolute basis and relative to your company,” said the Terra board. “Accordingly, our board has unanimously concluded that your proposal is not in the best interests of Terra and our shareholders and we decline to accept it.”
Under CF’s proposal, each common share of Terra would be entitled to receive 0.4235 shares of CF. CF noted that this was a 23 percent premium over the closing price of Terra shares on Jan. 15, 2009. The transaction valued Terra at $2.1 billion, or $20 per share. Under the deal, CF shareholders would have owned 53 percent of the company and Terra 47 percent.
Around noon on Thursday, CF responded to Terra’s rejection, saying it remains committed to its proposal to create a leader in the global fertilizer industry through an acquisition of all outstanding common shares of Terra Industries Inc. “We are confident that our proposal is a full and fair offer and continue to believe that a combination of the two companies would provide significant benefits to both CF Industries and Terra shareholders, employees and customers,” said Stephen Wilson, CF chairman, president, and CEO. “With annual cost synergies expected to exceed $100 million and the combined talent and scale to compete better globally, we believe the combination is in the best interests of all CF Industries and Terra constituents. Our offer, which is not subject to any financing condition, has been very positively received by the market.”
CF said while it remains its strong preference to enter into a negotiated transaction with Terra, the company is committed to a combination and will consider its options.
Industry speculation as to what will happen regarding the deal spanned the gamut. Some agreed that CF gave a good offer, while others felt Terra was undervalued. Still others speculated that CF may increase its bid and Terra will eventually accept. However, the entire economy is in a period of uncertainty. Terra owners may want to roll the dice and see if the economy improves. After all, aren’t most fertilizer companies predicting long-term growth? If true, shouldn’t things improve? CF values Terra shares at $20. Terra has a 52-week high-low of $11.21-$57.64. Then again, Terra shareholders may want to eventually reduce their risk and become part of a much larger nitrogen company that also has investments in phosphate.
Others wondered if there might be antitrust concerns, though CF has dismissed these, citing nitrogen as a global market, with the U.S. importing some 50 percent of its nitrogen needs.
Others suggested the CF offer may elicit other bidders and start a bidding war. However, will other potential bidders be stymied by the global financial crisis?
If there are other bidders – who? Yara International ASA, the major global nitrogen player, dove into the North American production business by acquiring Saskferco Inc. in 2008. Would it be interested in expanding its North American production? It is already a joint venture partner with Terra in the United Kingdom. Like Terra in the U.S., Yara in Europe is involved in the sale of nitrogen to clean up vehicle emissions.
And what about Agrium Inc.? It is a big player always looking for an opportunity. It lost some U.S. production with the idling of its Kenai, Alaska, plant. Agrium lacks a major nitrogen plant in the U.S. heartland and bowed out of attempts years ago to build a huge plant in the Midwest. It is a retail giant that must source a lot of nitrogen.
What about Bunge Ltd., a major fertilizer player in South America? It has recently beefed up its marketing in North America.
And could Koch Nitrogen Co. digest another round of nitrogen plants?
The question for all of these or other players, however, gets back to whether they have the wherewithal in today’s financial climate to move forward with such a large acquisition.
The one major player not on the list may be PotashCorp, which in the past has stressed its acquisition preference for potash assets. More nitrogen has not been a priority.