Nitrogen and phosphate fertilizer producer CF Industries Holdings, Inc. (CF) Monday sweetened the cash component of its hostile takeover offer to acquire rival Terra Industries, Inc. (TRA) by $4.75 per share to $36.75 per share, as the acquisition war intensifies, with Canadian fertilizer and agricultural products distributor Agrium, Inc. (AGU, AGU.TO) in the fray to acquire CF.
The cash and stock offer, being the eighth offer for Sioux City, Iowa-based Terra, now values Terra at $45.91 per share or $4.58 billion, based on CF's closing price on Friday of $88.55. Meanwhile, Terra confirmed receipt of the sweetened offer and said it will review the the revised proposal at a board meeting later this week.
CF's sweetened cash and stock offer for Terra constitutes $36.75 in cash, plus 0.1034 of CF share for each Terra share. The cash component of the offer includes $7.50 of special cash dividend declared by Terra to be paid to its shareholders on December 11. Excluding the dividend, the offer is valued at $38.41 per Terra share, representing a 50% premium over Terra's unaffected share price after payment of the dividend.
In a statement, 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."
Taking into consideration that the Terra stock has surged recently on takeover speculations, the current offer represents a much greater premium. The offer also represents a highly attractive multiple of 10 times trailing 12-months EBITDA.
CF said in a letter to the Terra board on Friday that it was prepared to immediately "sign a merger agreement before the market opens on Monday, December 7th." Terra had rejected CF's previous proposals as financially inadequate.
The latest CF offer is not subject to financing and CF has also satisfied all antitrust regulatory conditions required to close the transaction. CF noted that it has provided a form of merger agreement, which mentions a "go-shop" period and a break-up fee of $1 per Terra share, plus expense reimbursement.
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. Terra board only conducts reelection for three of its eight member board in any one year.
Meanwhile, in the three-way hostile acquisition bid, Agrium said last week that it plans to nominate its own slate of directors for election at CF's next annual shareholder meeting. A possible merger between CF and Terra has been in the news since January 2009. Barely days after CF tabled its US$2.1 billion buyout bid for Terra in January, it found itself in the crosshairs of its bigger rival Agrium in February, with Agrium offering about US$3.6 billion to buy CF.
Agrium has been approaching CF Industries with buy-out offers since the beginning of the year, while CF has been pursuing its rival Terra Industries. A combination of any two of these three companies would create one of the world's biggest nitrogen fertilizer producers.
CF rebuffed Agrium's offer, terming it "grossly inadequate" and "an attempt to interfere with its own proposed business combination with Terra." The company then sweetened its bid for Terra by nearly 38%. However, Terra snubbed CF's takeover bid for the second time, saying that even the revised offer substantially undervalued Terra both absolutely and relative to CF.
In mid-March, CF's board reaffirmed its intention to pursue a business combination with the Terra and sent a letter to Terra's board of directors. However, that offer too was rejected by Terra, marking the third time the company rejected CF's offer, and continued to reject the subsequent offers also.
On November 1, CF sweetened its offer, being the seventh offer, to $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. The offer included the $7.50 per share special dividend declared by Terra. In its offer, CF included for the first time a 80% cash component, with only about less than 20% in stock. It represented a sweetened offer by about $200 million, or $2 a share, from CF's sixth all stock offer made in September of 0.465 CF shares for each Terra share.
Six of the eight offers made by CF were all stock offers that required CF shareholder approval. The latest two offers represents 80% in cash and about less that 20% in new shares issued. The deal would not then require CF shareholder approval provided 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.
In September, CF announced that it has acquired about 7% of Terra in the open market over a period of two weeks. CF Industries purchased about 6.99 million shares at a cost of $247 million.
Credit Suisse Securities (USA) LLC is serving as Terra's financial adviser, and Cravath, Swaine & Moore LLP and Wachtell, Lipton Rosen & Katz are serving as legal counsel to Terra. Morgan Stanley and Rothschild are acting as financial advisors and Skadden, Arps, Slate, Meagher & Flom LLP is acting as legal counsel to CF Industries.
In Monday's regular trading session, CF is currently trading at $87.94, down $0.61 or 0.69% on a volume of 0.42 million shares. In the past 52-week period, the stock has been trading in a range of $41.51 to $95.13.
TRA is currently trading at $41.96, up $2.91 or 7.45% on a volume of 1.74 million shares after hitting a 52-week high in early trades.
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