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Yara Buys Terra

Mergers: International consolidation in fertilizer business picks up

by Melody Voith
February 22, 2010 | A version of this story appeared in Volume 88, Issue 8

Credit: Yara International
Yara's fertilizer plant in Glomfjord, Norway.
Credit: Yara International
Yara's fertilizer plant in Glomfjord, Norway.

Norway's Yara International has agreed to purchase rival U.S.-based fertilizer producer Terra Industries for $41.10 per share, a 23.6% premium on Terra's closing stock price on Feb. 12, the trading day before the announcement. The all-cash offer values Terra at $4.1 billion. The combined company will be the world’s largest producer of ammonia and UAN, a mixture of ammonia and urea.

The acquisition comes a month after Terra fended off a yearlong takeover attempt by CF Industries. In January, CF withdrew its bid, which had reached $36.75 in cash and 0.1034 CF share per share of Terra. CF is itself the target of a hostile purchase attempt by Agrium.

In a press conference, Yara CEO Jørgen Ole Haslestad said that lower natural gas prices in the U.S. have made it more cost competitive to produce nitrogen fertilizer domestically for the U.S. market. He added that the high capital costs of building new manufacturing facilities favors Yara's strategy of buying existing capacity.

Yara already has a U.S. presence on the East Coast; the purchase of Terra will expand its reach to a large swath of the midwestern Corn Belt. Yara will also gain two pipelines used to transport ammonia from the Gulf of Mexico.

In the U.K., Yara will take over Terra's half of the two firms' GrowHow joint venture. It will also get Terra's 50% joint venture in ammonia manufacturing in Trinidad, where Yara has production facilities.

The combination will give Yara a 30% share of the U.S. fertilizer market and an 8% share of the worldwide market, according to the company. It expects to save more than $60 million a year in cost synergies.

To help pay for the acquisition, Yara plans to raise $2 billion to $2.5 billion by selling shares. It also plans to sell its 15.5% stake in Brazilian fertilizer company Fosfertil to mining giant Vale for $785 million. The transaction is subject to partner firm Bunge also selling its larger 42.3% stake in Fosfertil, among other assets, to Vale in a deal worth $3.8 billion. Meanwhile, Mosaic has granted Vale the option to purchase its 20% share in the Brazilian fertilizer firm for approximately $1 billion.



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