Terra Industries Inc. said Dec. 14 that its board of directors, after careful consideration, including receipt of advice of its independent financial and legal advisors, has unanimously rejected CF Industries Holdings Inc.’s latest proposal to acquire Terra for $29.25 per share in cash plus 0.1034 of a share of CF common stock per Terra share, because it continues to substantially undervalue Terra.
Terra said the board considered, among other factors, that the fertilizer sector has strengthened significantly in recent months. In addition, moderate gas costs and the broader recovery among Terra’s agricultural and industrial customer base is expected to drive rising demand and improving margins for Terra’s upgraded nitrogen products. The board believes the market consensus is shifting to reflect the brighter near- and long-term prospects for the entire sector, and that the latest improvement to CF’s bid does not fully reflect these brighter prospects. As an example of this recent re-rating of the fertilizer sector, the board noted that the market-weighted average increase in stock prices of global fertilizer companies (excluding CF, Agrium Inc., and Terra) over the period from CF’s Nov. 1 proposal to Dec. 11 is 26 percent, and the market-weighted average increase for the unaffected pure-play nitrogen companies is 34 percent. These figures compare to an increase in the S&P 500 of 7 percent over the same period.
Terra said its board will continue to consider any bona fide opportunity that creates meaningful value for all Terra shareholders.
CF said Dec. 15 that it will not seek to extend the financing commitments for its proposed acquisition of Terra, which expire on Dec. 31, 2009. CF said that its ability to obtain financing for any transaction with Terra after that date will depend on the credit markets and other factors at that time.
CF also stated that it has sold a sufficient number of Terra shares in market transactions to bring its interest in Terra to just below 5 percent of Terra’s outstanding shares. CF had earlier bought up to 7 percent. As a result, CF will no longer be required to file a Schedule 13D with respect to Terra with the U.S. Securities and Exchange Commission, and future discussions or negotiations with Terra will not be publicly disclosed on Schedule 13D.
CF sold just enough shares to get below 5 percent ?Çô to 4,976,048, or 4.98 percent. CF sold just over 2 million shares within the last 60 days in the price range of $33-$34 per share, thereby pulling in just over $68 million, according to the SEC filing.
Back in September, CF said that it acquired approximately 7 percent of Terra in the open market over a two-week period (GM Oct. 5, p. 1). CF 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.
“We continue to believe that an acquisition of Terra is in the best interests of the stockholders of both companies and intend to consider alternatives available to us to advance this transaction,” said Stephen Wilson, CF chairman, president, and CEO.
CF said there can be no assurance that it will take further action to acquire Terra or that the financing necessary to fund such a transaction will be available after Dec. 31, 2009.
In the meantime, Agrium Inc., which announced major Egyptian nitrogen and Saskatchewan potash initiatives last week (see page 1) reiterated that it remains interested in CF. In fact, on Dec. 14, Agrium sent the CF board a slide presentation that it said demonstrates Agrium’s compelling offer. It said CF’s board needs to justify not engaging with Agrium.
Agrium also warned that CF’s offer for Terra is likely to result in value impairment of $880 million, or $14.75 per CF share. “CF stockholders want to receive a premium, not pay one,” said Agrium.
Agrium noted that its own offer for CF is now valued at $107.88 per share. Early in the merger game CF had indicated that a bid of over $100 per share might get its attention, but CF partisans now say that was then, that the markets have gone up in the meantime. Agrium says the $107.88 represents 20 percent to CF’s current trading price of $89.99, 37 percent to CF’s unaffected price of $78.50, and 43 percent to CF’s expected share price of $75.25 pro forma a combination with Terra.
Agrium said an upward sector move of 35 percent from the current Agrium offer would achieve a future CF stock price of $146, assuming a 100 percent stock election. By comparison, Agrium said CF shareholders would have to realize an 86 percent sector upward move on CF’s unaffected price and a 94 percent sector upward move on CF’s share price pro forma a combination with Terra to achieve equivalent future value.