Fertilizer producer Terra Industries Inc. (TRA) Sunday said that its Board rejected a latest merger proposal submitted by CF Industries Holdings, Inc. (CF) over the weekend. Terra, which had rejected CF's previous proposal as financially inadequate, said that the current proposal does not provide any basis for engagement with CF.
A possible merger between fertilizer products company CF and Terra has been in the news since January 2009, when CF came up with a bid to acquire all of the outstanding shares of Terra for an estimated value of US$2.1 billion. However, barely days after CF tabled its buyout bid, the company found itself in the crosshairs of its bigger rival and fertilizer company Agrium,Inc. (AGU, AGU.TO). In February, Agrium offered to buy CF for about US$3.6 billion.
According to Terra, CF's latest offer contained the same economic terms as its most recent proposal on November 1, along with a 30-day "go shop" provision subject to a break up fee and expense reimbursement. In the November 1st bid, CF offered $32.00 in cash and 0.1034 of a share of CF common stock for each Terra share, valuing Terra at $40.61 per share or about $4.1 billion. This offer included a special dividend of $7.50 per share declared by Terra, excluding which the cash portion of the offer was $24.50.
Sioux City, Iowa- based Terra said that its shareholders, including those that voted for CF, delivered a consistent message to Terra's Board and management team that CF's proposal to acquire Terra for $24.50 in cash and 0.1034 of a share of CF common stock is inadequate.
Terra also said that at its Annual Meeting, only 38% of the outstanding shares unaffiliated with CF appeared to be voted in favor of CF's nominees. Excluding about 7% of Terra's outstanding shares that are owned by CF, the preliminary voting results indicated that CF's nominees were elected by a very narrow margin of about 2%. This underscored the absence of any mandate for CF's inadequate proposal.
According to Terra, it is well-positioned to benefit significantly from an expected upsurge in demand for nitrogen as the economic recovery continues. The 2010 EBITDA estimate of $694 million underscores the company's strong prospects, and the inadequacy of CF's latest proposal, Terra noted.
Further, the company said that its share price has appreciated approximately 130% for the year-to-date period. The entire fertilizer sector, Terra in particular, will benefit from an anticipated strong growing season, strengthening corn and nitrogen prices and moderate gas costs.
Terra also stated that its shareholders will receive $7.50 per share special cash dividend on December 11. The company, which returned more than $1 billion to shareholders, remains committed to returning profits to shareholders in the form of dividends and buybacks.
Meanwhile, Terra's shareholders have voted three nominees of CF into Terra's Board. Terra said that its Board will welcome the three new directors, John Lilly, David Wilson, and Irving Yoskowitz once the election results are certified. The Board has also taken steps to expand it to eleven members. Then, Terra's three independent directors, Martha Hesse, Dennis McGlone and Henry Slack, will continue to serve on the Board.
Credit Suisse Securities (USA) LLC is serving as Terra's financial advisor, and Cravath, Swaine & Moore LLP and Wachtell, Lipton, Rosen & Katz are serving as legal counsel.
TRA closed Friday's trading at $40.06, up $1.96, on a volume of 8.09 million shares.
CF ended at $82.73 on Friday, down $0.14, on a volume of 4.22 million shares.
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