UpdateUS CF Industries sees synergy with Terra, not Agrium

23 March 2009 19:17  [Source: ICIS news]

HOUSTON (ICIS news)--US fertilizer producer CF Industries said on Monday that its board of directors rejected a $3.6bn (€2.7bn) takeover offer from Canada’s fertilizer retail giant Agrium because it saw greater synergies and opportunities in a merger with rival Terra Industries.

CF explained in a conference call with investors why its board rejected Agrium’s stock and cash offer of $72 per CF share and proceeded with its stock-for-stock offer for Terra.

“The Agrium offer premium is inadequate (16.6% premium to the last unaffected CF common share price of  $55.58 on 24 February) and the time of the offer is opportunistic, coming at a low point in the economic and fertilizer cycles,” CF chairman and CEO Steve Wilson said.

The Agrium offer for CF was fundamentally at odds with CF’s long-term strategy and Agrium has an inferior phosphate business, Wilson said.

Wilson noted that Agrium made an unsuccessful bid for CF in 2005 prior to CF’s initial public offering that year.

“CF is focused on its higher-margin manufacturing and distribution business while Agrium has a lower-margin retail business,” Wilson said.

Retail fertilizer sales account for 55% Agrium’s $10bn total business in 2008. CF had total revenues in 2008 of $3.9bn from fertilizer production and distribution with 66% coming from nitrogen and 34% from phosphate.

“Based on the daily closing prices for Agrium and CF, the implied value of Agrium’s offer represented a premium of 1.8% to CF common stockholders during the 12 months prior to 25 February,” Wilson said.

“By comparison, the high end of our collar range of 0.4539 in our proposal [with an estimated value of $3.15bn] to combine CF and Terra results in an average implied premium for the one-year period prior to 15 January of 36% to Terra stockholders,” Wilson said.

Wilson said the chief executive of Agrium had publicly acknowledged that Agrium is trying to use the slumping fertilizer and stock markets to acquire CF at a discount.

Wilson said CF is not surprised that Agrium indicated exposure to CF’s phosphate facility and rock mine in Florida was a key motivator for Agrium’s offer.

“We believe Agrium’s phosphate business is of poor quality compared to ours,” Wilson said.

CF has a capacity of 2.2m tonnes at two phosphate facilities in Florida. Agrium’s phosphate facilities in Idaho and Alberta have a combined capacity of 1.3m tonnes.

CF said it has 23 years of proven reserves of phosphate rock while Agrium’s Kapuskasing mine in Ontario will run out of rock in five years.

In contrast to the problems CF foresees with Agrium, synergies between CF and Terra are many, according to Wilson.

A combination of CF and Terra would result in more than $100m in cost synergy reductions, he said.

“Terra and CF have highly complementary manufacturing and distribution assets in the central US,” the CF executive said. “The combination of those assets would create a substantial and achievable opportunity for synergies from reduced shipping miles and costs and a rationalisation of rail fleets.”

Together, CF and Terra would have a fleet of 5,300 rail cars.

CF and Terra operate nitrogen plants next to each other at Donaldsonville, Florida. The two facilities were originally a single complex and could easily be combined, CF said.

Wilson said CF and Terra had similar technologies in their ammonia, urea and urea ammonium nitrate (UAN) operations that create opportunities for decreased costs through reducing spare parts inventories and optimized maintenance and operations, CF said.

($1 = €0.74)

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By: Frank Zaworski
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