CF-Agrium Takeover Battle Continues

The takeover battle between CF Industries Holdings Inc. (CF - Analyst Report) and Agrium Inc. (AGU - Analyst Report) took another turn when the former announced that it will consider a merger deal with Agrium, the hostile bidder on June 26, 2009. Stephen R. Wilson, Chief Executive, President and Chairman of CF Industries stated that Agrium should however make an attractive offer, which must interest the company’s board.

Based in Deerfield, Illinois, CF had earlier repeatedly rejected Agrium’s takeover offer. Despite two upward revisions in the offer price, CF had turned down Agrium’s proposal on grounds of substantial undervaluation and associated regulatory issues. CF has stated that Agrium’s final offer of about $4.4 billion continues to undervalue the company.

On June 23, CF’s shareholders tendered 62% of their total outstanding shares in support of Agrium's current offer of $40.00 plus one Agrium share per CF share. Based on Agrium's closing price of $40.40 on June 26, the offer values CF at $80.40 a share. On June 26, CF shares traded around $76.00 a share. According to Agrium, this offer represents a 59% premium to CF's closing price on February 24, 2009, when the offer was made for the first time. Although the offer is attractive, Agrium might have to increase its offer to $90-$100 per share.

Soon after the tender results, Agrium extended the deadline to July 22, 2009 to acquire CF. Post acquisition, Agrium would become the world's fourth-largest fertilizer producer. Meanwhile, CF is pursuing another acquisition of Terra Industries Inc. (TRA - Snapshot Report), which produces and markets nitrogen products. Terra has repeatedly rebuffed CF’s approaches. However, CF remains committed to acquire Terra and has extended the deadline of its exchange offer for all outstanding shares of Terra to July 10, 2009.

We rate CF’s shares a Hold and set our six-month target price of $83.00.