Hostile bid for Terra lands CF Industries in Agrium's crosshairs

The hunter has now become the hunted. Only a day after fertiliser maker CF Industries officially launched its hostile offer for American rival Terra, it has itself become the target of an unsolicited bid by Canadian rival Agrium Inc.  (See: CF Industries launches $2.37-billion hostile bid for rival fertiliser maker Terra)

Agrium, based out of Calgary, said it's bidding $3.6 billion of cash and stock for CF Industries Holdings in a deal that would add CF's North American nitrogen, phosphate and crop nutrient distribution assets to Agrium's global wholesale and retail capabilities.

The term would be structured so that each CF share could be swapped for $31.70 in cash and one Agrium share, a deal worth at Tuesday's close $72 a share, a 30 per cent premium over Tuesday's price. Agrium said the deal would create more synergies - an estimated $150 million annually - than CF's plan to buy Terra Industries.

"The proposed transaction is strategically compelling and a superb opportunity to create value for both Agrium and CF shareholders. Adding CF's strong North American nitrogen, phosphate and extensive crop nutrient distribution assets to Agrium's broader global wholesale and retail capabilities would greatly enhance our existing portfolio and enable us to create a premier global franchise across the entire agricultural value chain," said Agrium President and CEO Mike Wilson.

"We will have combined revenues of nearly $14-billion and become a global leader in nutrient production and distribution. The acquisition would also triple our phosphate and UAN capacity and further strengthen all aspects of our business. We expect to achieve significant operating synergies - well in excess of those contemplated in CF's proposal to acquire Terra Industries Inc. - and expect the combination to provide many benefits to the customers, suppliers, and employees of both Agrium and CF, as well as the communities in which both companies operate. Furthermore, our offer presents CF stockholders a compelling opportunity for significant long-term value through their ownership in the combined company," he said.

Agrium expects to realise substantial annual operating synergies of approximately $150-million from the combination within three years of closing, and CF stockholders will share in the value of those synergies through their continued ownership of 24 percent of the combined company. Agrium expects the transaction to be accretive to both earnings and cash flow in 2010 and significantly accretive on both measures in subsequent years.

The proposal is not subject to a financing condition. Agrium has sufficient cash resources and committed financing underwritten by Royal Bank of Canada and The Bank of Nova Scotia to fund the cash portion of the proposal. RBC Capital Markets and Scotia Capital are acting as financial advisors to Agrium and Paul, Weiss, Rifkind, Wharton & Garrison LLP and Blake, Cassels & Graydon LLP are providing legal advice.

Consequently, shares of CF Industries leapt 23 per cent to $68.38 before the bell on Wednesday on news of this possible takeover. Founded in 1946 as a fertilizer brokerage operation by a group of regional agricultural cooperatives, CF Industries has grown by expanding its distribution capabilities and diversifying into fertiliser manufacturing.