CF Industries Finally Wins Terra

CF Industries' play for rival fertilizer maker Terra Industries--begun as a hostile take-over attempt some 14 months ago--has ended with an agreement to merge.

CF finally prevailed with a sweetened cash and stock bid that values Terra at approximately $4.7 billion. The offer is for $37.15 per share in cash plus 0.0953 of a share of CF stock for each share of Terra. Before it received the latest CF offer, Terra had accepted a bid from Norwegian fertilizer firm Yara for $4.1 billion in cash. Yara declined to raise its offer and instead will be entitled to a break-up fee of $123 million.

Terra will become a wholly-owned subsidiary of CF. In a joint press release, the firms claim "CF Industries and Terra have complementary strengths in nitrogen, providing breadth and flexibility in product offerings. In addition, the locations of CF Industries' and Terra's facilities together expand the combined company's domestic reach."

The stock market value of fertilizer companies has increased considerably since January 2009, when CF publicized that it planned to purchase Terra for $2.1 billion. That offer, and several later offers, was refused by Terra's board of directors.

While CF was reworking its efforts to acquire Terra, it was itself fending off a take-over attempt by another fertilizer company, Agrium, which in February proposed an offer of $45.00 per share in cash plus one Agrium share per CF share. But the bid was contingent on CF not buying Terra, and Agrium now says it will no longer pursue the deal.

Pending regulatory approval, the combination of CF and Terra will create the world's largest producer of nitrogen fertilizers, with a combined capacity of 6.3 million tons per year. In addition, the new company will include CF's business in phosphate fertilizers.

In a note to clients, Charles Neivert, managing director of investment bank Dahlman Rose, explains some of the reasons for the recent excitement about fertilizers: "Prices for nitrogen and phosphate are stronger on snug supplies, in part due to outages and maintenance, offshore sales which cut North American supply, increasing seasonal demand, and perhaps most importantly, low inventories."