CF Industries – Eat or Be Eaten?

Highlights include CF Industries Holdings, Inc. (CF - Analyst Report), Agrium Inc. (AGU - Analyst Report) and Terra Industries Inc. (TRA - Snapshot Report).

The saga of what is happening with CF Industries (CF - Analyst Report) took another turn today as Agrium (AGU - Analyst Report) boosted the cash component of its offer by 10% (from $31.70 to $35), which will add $160 million to its bid (from $72 to $75). Terra (TRA - Snapshot Report), meanwhile, has rejected CF Industries' offer to take over the company, and a hostile effort will ensue at the next board meeting at CF Industries.

Right now, it is cheaper to buy than build fertilizer assets, and hence the flurry of M&A activity. (This makes one wonder if this could be a market-wide issue, as stock prices are depressed.) Fertilizer prices are mixed, as farmers are waiting for the results of the USDA acreage survey, which will occur next Tuesday.

Right now, our feeling is that Agrium will prevail and CF Industries will be eaten. The company has a fiduciary responsibility to do the best for its shareholders, who are undoubtedly looking for the best exit strategy possible after the market collapse last year.