Nitrogen products maker Terra Industries Inc. (TRA) Monday again rejected the latest acquisition proposal from larger rival CF Industries Holdings, Inc. (CF), terming the offer continues to substantially undervalue Terra. CF's latest proposal was to buy Terra for $29.25 per share in cash plus 0.1034 of a share of CF common stock per Terra share. Terra's Board believes ''the market consensus is shifting to reflect the brighter near-and long-term prospects for the entire sector, and that the latest improvement to CF's bid does not fully reflect these brighter prospects.''
It was on December 7 that CF sweetened its offer for Terra, from its earlier offer on November 1, which was the eighth offer for the company. At that time, chairman, president and chief executive officer of CF, Stephen Wilson said, "We have made a compelling offer, which represents more than a 50% premium to what we believe would be the unaffected trading price for Terra. It is time to sign a merger agreement and put these two great companies together."
In a three-way-battle, CF is being pursued by Canadian fertilizer and agricultural products distributor Agrium, Inc. (AGU, AGU.TO). Agrium has been approaching CF with buyout offers since the beginning of the year, while CF has been pursuing Terra. A combination of any two of these three companies would create one of the world's biggest nitrogen fertilizer producers.
Terra said today that its Board of Directors considered several factors before arriving at this decision. The company noted that the fertilizer sector strengthened significantly in recent months, adding that moderate gas costs and the broader recovery among its agricultural and industrial customer base is expected to drive rising demand and improving margins for the company's upgraded nitrogen products.
Terra's Board noted that the market-weighted average increase in stock prices of global fertilizer companies, excluding CF, Agrium and Terra, over the period from CF's November 1 proposal to December 11 is 26%, and the market-weighted average increase for the unaffected pure-play nitrogen companies is 34%. These figures compare to an increase in the S&P 500 of 7% over the same period.
Terra also said its Board will continue to consider any bona fide opportunity that creates meaningful value for all Terra shareholders.
Last month, in a partial victory for CF in its hostile bid for Terra, CF succeeded in getting its slate of three nominees elected to the Terra board, which could boost its takeover attempt as all earlier attempts were repeatedly rejected.
Six of the eight offers made by CF were all stock offers that required CF shareholder approval. The latest two offers represent 80% in cash and about less than 20% in new shares issued. The deal would not require CF shareholder approval, if the new shares issued are less than 20%. However, the transaction would be subject to approval by the Terra Board of Directors, entering into a definitive agreement with customary conditions and confirmatory due diligence.
Credit Suisse Securities (USA) LLC is serving as Terra's financial advisor. Cravath, Swaine & Moore LLP and Wachtell, Lipton Rosen & Katz are serving as legal counsel to Terra.
TRA shares, which closed Friday's regular trade lower by $0.22 at $42.90, plunged 7.85% or $18.41% in pre-market activity Monday and are at $35.00.
CF closed the regular trade on Friday at $89.99, up $1.68 or 1.90% from the previous close.
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