What do you do after CF Industries Holdings, Inc. successfully elects three members to your eight-member board of directors on Nov. 20? You create three new director positions and expand your board to eleven. That is exactly what Terra Industries Inc. announced Sunday, Nov. 22.
While Terra said it would welcome the three CF nominees – John Lilly, David Wilson, and Irving Yoskowitz – as new directors after the election results are certified, it also said that by a unanimous vote of the directors whose terms do not expire this year, it has taken steps to expand the board membership to eleven members. The three additional slots will be filled by Martha O. Hesse, Dennis McGlone, and Henry R. Slack, who would have otherwise exited the board due to the victory of the CF nominees. Terra said the board believes that Terra’s shareholders will benefit the most by combining the experience of returning members with the new perspective of the three additions to the board.
CF had an inkling that Terra might take this move, as was evidenced in a Nov. 13 CF letter to Terra shareholders. “We understand that, under Maryland law, the Terra board of directors could re-appoint those directors to the Terra board,” said CF Chairman, President and CEO Stephen Wilson. “If the Terra board decided to take such action in the exercise of its fiduciary duties (without disenfranchising stockholders through increasing the size of the board beyond what would result from reappointing those directors), we would not be in a position to object.”
In addition, Terra said that over the weekend CF submitted a proposed merger agreement to Terra containing the same economic terms as its most recent proposal from Nov. 1, together with a 30-day “go shop” provision subject to a break-up fee and expense reimbursement. This would have allowed Terra to seek other offers. Terra said its board previously rejected CF’s proposal as financially inadequate, and has once again concluded that the proposed merger agreement does not provide any basis for engagement with CF.
“We have proposed a process through which Terra and CF Industries could negotiate the terms of a transaction, while preserving Terra’s ability to seek higher offers,” said Wilson in a statement Nov. 23. “It is clear that the Terra stockholders want a transaction, and we should move forward to put these two great companies together.”
Terra said that during the weeks leading up to the annual meeting, Terra shareholders, including those who voted for CF, delivered a consistent message to Terra’s board and management team that CF’s proposal to acquire Terra for $24.50 in cash and 0.1034 of a share of CF common stock for each Terra share is inadequate. Terra said that it appears that at the annual meeting only 38 percent of the outstanding shares unaffiliated with CF voted in favor of CF’s nominees. Terra said excluding the approximately 7 percent of Terra’s outstanding shares that are owned by CF, the preliminary voting results indicate that CF’s nominees were elected by a very narrow margin of approximately 2 percent, underscoring the absence of any mandate for CF’s inadequate proposal.
“As I said at our annual meeting, our shareholders have provided us with many differing perspectives and we welcome that input and will take all views into account,” said Michael Bennett, Terra president and CEO. “Nothing about the vote changed the value of CF’s proposal. We continue to believe that Terra’s current strategy, which capitalizes on our attractive product mix, diversified customer base and geographic advantages, will deliver greater value than CF’s proposal. Accordingly, our focus continues to be executing on our strategy to deliver results for Terra shareholders.”
Not to be left out, Agrium Inc. said on Nov. 23 that there were more CF shareholders in favor of an Agrium-CF deal than there were CF shareholders in favor of a CF-Terra deal.
“Agrium is emboldened by the overwhelming support it received from CF stockholders, with 60 percent of CF shares (excluding Agrium’s shares of CF) tendered to our very clear and unambiguous offer,” said Mike Wilson, Agrium president and CEO. “In comparison, we understand that the votes received by CF’s nominees for the Terra board represented the votes of only 38 percent of Terra’s outstanding shares, after adjusting for the 7 percent of Terra shares purchased by CF ahead of the vote. Furthermore, the Terra vote was about engagement, while Agrium’s tender offer results were a referendum on concluding a defined transaction at a specific price.
“We believe that with the benefit of reflection, CF’s board should respond appropriately and responsibly to the clear message sent by their stockholders, expressed through the tender offer. Agrium will continue to pursue this compelling transaction, which is now worth more than $102 per share for CF stockholders. We believe as strongly as ever that Agrium and CF would be a great combination.”