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CF Industries Wants Terra

Combined firm would be world's largest nitrogen producer

by Melody Voith
January 26, 2009 | A version of this story appeared in Volume 87, Issue 4

Credit: USDA
CF Industries and Terra Industries produce anhydrous ammonia, a source of nitrogen fertilizer.
Credit: USDA
CF Industries and Terra Industries produce anhydrous ammonia, a source of nitrogen fertilizer.

CF INDUSTRIES is offering to acquire Terra Industries in an all-stock deal that values Terra at $2.1 billion. If completed, the deal will create the world's largest producer of nitrogen fertilizers, with a combined capacity of 6.3 million tons per year.

CF, which is based in Deerfield, Ill., announced the offer without disclosing whether it tried to negotiate with Terra executives. The following day, Sioux City, Iowa-based Terra confirmed that it received what it called an "unsolicited proposal" that its board "will consider and evaluate."

According to the offer, Terra shareholders would each receive 0.4235 shares of CF stock for each share of Terra they own. The proposal represents a 23% premium over Terra's closing stock price on Jan. 15, hours before CF made the offer.

The fertilizer industry is currently dealing with inventory buildup and price declines. Terra was one of several companies that recently announced production cutbacks (C&EN, Jan. 5, page 10).

In a conference call with analysts, CF CEO Stephen R. Wilson said the merged company would be better equipped "to pursue growth opportunities and manage risk exposures. As the global leader in nitrogen fertilizer, we believe the combined companies would become the 'must own' stock for investors seeking exposure to our industry."

During the call several analysts questioned whether the combined company's almost 50% share of U.S. nitrogen fertilizer production could raise a regulatory red flag. Wilson responded that he did not anticipate any problems, citing the global nature of the market and the fact that half of the nitrogen fertilizer applied in the U.S. is imported.

Wilson said shareholders would see increased earnings from a merger in the second year after the deal, due largely to $100 million in yearly cost savings.

The deal would address three critical components of profitability for the fertilizer industry, according to Robert Koort, a chemical stock analyst at Goldman Sachs. In a note to investors, he says the merged company "would have production and storage facilities throughout North America and enjoy lower priced raw materials and economies of scale. The company would also benefit from Terra's proximity to the Midwest end markets."



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