Opportunism Everywhere in Fertilzer Business (CF, AGU, TRA, MOO)

Fertilizer maker CF Industries Holdings, Inc. (NYSE: CF) this morning rejected a buyout offer from Canada’s Agrium, Inc. (NYSE: AGU). The stock and cash offer was valued at about $72/share of CF stock.  Last week,  Terra Industries, Inc. (NYSE: TRA), a fertilizer maker, rejected CF’s $2.1 billion all stock bid.

Terra said that CF’s offer was opportunistic and substantially undervalued the company.  CF said today that Agrium’s offer was “grossly inadequate” and “opportunistic,” as well as “a transparent attempt to interfere with CF Industries’ proposed business combination with Terra.”

CF sweetened its original offer to $27.50/share of Terra in CF stock, at an exchange ratio of 0.4129 to 0.4539.  CF’s original bid in January proposed an exchange ratio of 0.4235, about $18.70/share of Terra.  No cash is involved in either proposal.

In its letter to Terra, the CF board notes that today’s offer marks a premium of nearly 70% to Terra’s share price at the time of CF’s first offer.

CF also answered Terra’s claim last week that Agrium’s offer for CF, which included as a condition that CF drop its bid for Terra, would likely result in a rejection of the Terra acquisition by CF shareholders. CF’s board took care of that by saying that CF would “structure the transaction so that a vote by the CF Industries stockholders will not be required.” CF says that if Terra will enter into a “negotiated merger agreement”, CF will issue preferred stock that trades at parity with CF common stock, precluding the necessity of a vote by common shareholders.

If CF could complete the deal for Terra, it would be about equal in size to Agrium. Therefore, Agrium does indeed want to “interfere” with the proposed deal by buying CF. Agrium must figure that such a combination will marginalize Terra, and that eventually Agrium will get Terra too.

Agrium shares are up slightly after falling immediately after opening this morning. Terra is also off slightly, while CF is barely up.  The Market Vectors Agribusiness ETF (NYSE: MOO) is up marginally after the open, and at $25.15 it is still at the bottom of its 52-week trading range of $20.08 to $66.20.

Paul Ausick
March 09, 2009