Terra Industries Inc. and Agrium Inc. announced Oct. 19 that they have signed an agreement in which Agrium would sell to Terra a 50 percent stake in Agrium’s Carseland, Alberta, nitrogen plant and certain U.S. assets for a purchase price of approximately US$250 million. However, the deal is contingent upon Agrium buying CF Industries Inc.
Agrium said it believes this agreement will address regulatory concerns under Canadian competition law in connection with its offer to acquire CF. Agrium also expects to refile its Hart-Scott-Rodino notification shortly with the FTC. CF has argued for some time that regulators may have trouble with an Agrium-CF deal.
“These actions will enable us to keep moving forward with the acquisition of CF Industries,” said Mike Wilson, Agrium president and CEO. “We believe CF stockholders strongly support our offer, and we will continue to press CF to engage with Agrium. We urge CF to begin meaningful discussions with us concerning our proposed acquisition.”
Agrium has extended the expiration of its offer to acquire CF for $40.00 in cash plus one Agrium share per CF share until 12:00 midnight, New York City time, on Nov. 13, 2009. As of Oct. 16, approximately 9.1 million common shares of CF had been tendered into and not withdrawn from the exchange offer.
Under the terms of the Carseland transaction, Terra will pay Agrium approximately $250 million in cash for 50 percent of the Carseland facility, or approximately 340,000 mt of urea and over 60,000 mt of net ammonia on an annual basis, and certain U.S. assets. The Carseland facility has the capacity to produce approximately 590,000 st of gross ammonia and approximately 750,000 st of granular urea per year. The purchase price for the 50 percent of Carseland is at a similar forward multiple to that which Agrium is offering for CF.
Agrium has also entered into a conditional supply arrangement with Terra for a long-term, competitively priced supply of approximately 175,000 mt of nitrogen products from Terra’s facilities.
Terra says the deal would provide it with important financial and strategic benefits, including greater exposure to cost-advantaged natural gas, a more diverse geographic footprint in North America, and ownership in a facility that enables the manufacturing of upgraded ammonia-based products, consistent with Terra’s long-term strategy.
On an as-adjusted operating basis for the twelve-month period ending June 30, 2009, Terra estimates gross revenues for 50 percent ownership of the Carseland facility would have been approximately $125 million, operating income approximately $33 million, and depreciation and amortization approximately $16 million.
“We are pleased with this opportunity to expand our portfolio of quality nitrogen fertilizer manufacturing assets,” said Michael Bennett, Terra president and CEO. “The Carseland, Alberta facility has a prime inland location and is designed to upgrade much of its ammonia to the value-added product urea.
“Four of Terra’s seven North American ammonia plants are currently supplied with natural gas in regions that are cost-advantaged to Henry Hub prices,” Bennett added. “This addition of nitrogen production capacity in western Canada would bring to Terra another North American gas source that has a long history of selling at a discount to key U.S. trading hubs.
“This transaction is consistent with Terra’s pure-play nitrogen strategy, which distinguishes Terra from its competitors,” he continued. “The transaction would be immediately accretive to Terra shareholders, and we believe it is a solid opportunity to create shareholder value.”
In addition to the conclusion of an Agrium-CF deal, the closing is also contingent on Terra’s raising $600 million of debt capital. On Oct. 19, Terra announced the pricing of its private offering of $600 million aggregate principal amount of Senior Notes due 2017 and to pay related premiums, fees, and expenses, pursuant to a cash tender offer announced on Sept. 24, 2009. Subject to certain conditions, Terra also intends to use a portion of the net proceeds of the offering, together with available cash, to pay a planned special $7.50 per share cash dividend (GM Sept. 28, p. 1) and to consummate asset acquisitions.