Fertiliser maker CF Holdings makes $2.1 billion bid for rival Terra Industries

Fertiliser maker CF Industries Holdings Inc on Thursday offered to buy rival Terra Industries Inc for $2.1 billion in stock, a combination that would create a leading global fertiliser producer. Terra shareholders will receive 0.4235 of a CF share for each Terra share held, a 23 per cent premium over the closing price of Terra shares on Thursday.

''The combination of CF Industries with Terra will create a leading fertilizer producer with enhanced ability to compete globally,'' said Stephen R Wilson, chairman, president and CEO of CF Industries. ''North America is an attractive agribusiness market with an ongoing need for strong global players domiciled here. We believe that the companies together will form a stronger, more competitive global player that can service more customers, more efficiently.''

Deerfield, Illinois-based CF Industries, said the deal is expected to generate more than $100 million in annual cost synergies and will add to CF Industries' earnings in the second year following deal closure. CF Industries, which has engaged Morgan Stanley and Rothschild as its financial advisors, has asked Terra to respond to the proposal latest by 30 January.

In a separate statement, Terra Industries said that the offer hadn't been solicited and that its board "will consider and evaluate the proposal and will pursue the course of action that is in the best interests of Terra and its shareholders." Accordingly, Terra shareholders" are advised to take no action at this time pending the review," the company said.

Terra has been recently struggling to cope with the steep decline in demand for industrial ammonia and has idled its Oklahoma facility and another at its joint venture, GrowHow UK Ltd's facility to keep inventory and working capital under control. Meanwhile, CF Industries is contemplating a $1 billion investment to develop an ammonia and granulated urea plant in Peru.

Fertiliser prices soared in the first half of 2008 on the peaking demand, tight inventories and record grain prices. However, the global economic slowdown has weighed on the agricultural sector and grain prices have collapsed considerably. Bigger companies like Agrium Inc and Potash Corp of Saskatchewan have expressed a keen desire in acquisition to take advantage of the macro environment.

CF's shares closed at $47.23 Thursday on the New York Stock Exchange, while shares of Terra closed at $16.29. CF Industries carries a market capitalization of $2.7 billion, about $1 billion more than Terra.