By Paul Ausick
Last January, fertilizer maker CF Industries (CF) made a $2.1 billion all-stock offer for rival Terra Industries (TRA). A month later, Canadian fertilizer giant Agrium (AGU) made a $3.6 billion offer for CF, provided that CF drop its bid for Terra.
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The competing bids have percolated all year. On Friday, CF announced that its three candidates for membership on Terra’s board had been elected. CF promptly re-iterated an earlier bid to buy Terra for about $4.05 billion. In its latest bid, CF offered to allow Terra to shop around for 30 days for a better bid. Terra did not bite and rejected the bid over the weekend.
Not to be left out, Agrium announced that it has received tenders for more than 60% of CF shares as of last week in its bid of about $5 billion for CF. Agrium still wants to acquire CF, but CF has adopted a poison pill and other measures that will make Agrium’s pursuit more difficult.
Share prices for all three companies have risen sharply since the beginning of the year. Terra is up about 140%, while CF and Agrium are both up about 70%. Forward P/E ratios for all three are in the 12-14 range.
CF’s bid for Terra includes $24.50/share in cash plus 0.1034 shares of CF common stock. Virtually all that cash (about $3.2 billion) is borrowed. From CF’s point of view, that’s not too bad because Terra has about $1 billion in cash on its balance sheet, roughly double CF’s total as of September 2009. And Agrium has just half as much cash on hand as does CF.
The jockeying for position among these three has gone on for almost a year now. If CF can prevail, it will be approximately equal to Agrium in market cap at about $9 billion. If Agrium prevails, it will grow by approximately 50%, to about $14 billion.
Sector leaders Potash Corp. (POT) and Monsanto (MON) have market caps above $30 billion, and Mosaic Corp. (MOS) carries a market cap of nearly $25 billion. That’s the league that Agrium wants to play in.
Agrium has something to gain from all the maneuvering, while CF and Terra only have something to lose. That encourages Agrium to fight harder.
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