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CF Industries Ends $8B OCI Deal Due to Tax Inversion Rules
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CF Industries (CF - Free Report) and Netherlands-based fertilizers and industrial chemicals producer – OCI N.V. – said yesterday that they have terminated the planned combination of CF Industries with specific assets of OCI after the U.S. government’s new tax inversion rules scuppered the merger.
CF Industries, in Aug 2015, agreed to purchase the European, North American and Global distribution assets of OCI N.V. in a deal worth around $8 billion, including assumption of roughly $2 billion in debt. The deal included OCI’s nitrogen production plants in Geleen, Netherlands, and Wever, IA, and its interest in an ammonia and methanol complex in Beaumont, TX, along with its global distribution assets in Dubai, UAE.
The companies amended their merger agreement in Dec 2015 and changed the jurisdiction of incorporation and tax residency of the proposed combined company to the Netherlands from the UK after the U.S. government took certain steps to crackdown on tax inversions.
The companies noted that, by being tax resident in the Netherlands, the combined company would satisfy the requirements of the U.S. Department of the Treasury’s notice issued in Nov 2015. The new Treasury rules are aimed at reducing the tax benefits available to companies that move their tax residence overseas to avoid paying taxes.
The Treasury, in Apr 2016, announced additional actions to further curb corporate tax inversions. These aggressive actions are aimed at reducing the economic benefits of inversion and slow the pace of inversion deals. The rules would make it more difficult for U.S. companies to qualify for a tax inversion. Since then, CF Industries and OCI have been exploring alternative transactions and structures that would be attractive to their respective shareholders.
However, the companies failed to come up with an alternative acceptable to both parties and, as a result, agreed to end the merger. CF Industries and OCI said yesterday that the Treasury actions “materially reduced” the structural synergies of the merger. Per the deal terms, CF Industries will pay OCI a $150 million termination fee.
The termination of the OCI deal is another blow to CF Industries after its merger talks with Norwegian fertilizer maker Yara International ASA (YARIY - Free Report) was terminated in Oct 2014 as the companies were unable to agree on the terms of a transaction that met the requirements of all their respective shareholders. The U.S. Treasury’s crackdown on inversions also led to the termination of the proposed $160 billion mega-merger between Pfizer (PFE - Free Report) and Allergan last month.
The merger of CF Industries and OCI assets would have created a global nitrogen behemoth with combined production capacity of around 12 million nitrogen-equivalent nutrient tons. The combined entity would have emerged as the world’s biggest publicly traded nitrogen company.
The merger was expected to boost CF Industries’ production capacity by 65% and also extend the company’s portfolio into the rapidly growing methanol market. The combination was also expected to deliver around $500 million (post-tax) in annual run-rate synergies through optimization of operations, capital and corporate structure.
CF Industries continues to see pricing pressure in its nitrogen business. Urea prices have been under pressure due to higher supply from Chinese producers. Global capacity expansion continues to exert pressure on urea and other nitrogen fertilizer prices, mainly urea ammonium nitrate (“UAN”).
Lower selling prices weighed on CF Industries’ bottom line in first-quarter 2016 as the company saw a roughly 89% plunge in its profits. Elevated supply in the global nitrogen market and weaker demand for ammonia globally pressured pricing in the quarter. Nitrogen prices are expected to remain under pressure in the near term due to higher supply.
CF Industries’ shares rose roughly 4.4% to close at $29.85 yesterday.
CF Industries is a Zacks Rank #3 (Hold) stock.
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CF Industries Ends $8B OCI Deal Due to Tax Inversion Rules
CF Industries (CF - Free Report) and Netherlands-based fertilizers and industrial chemicals producer – OCI N.V. – said yesterday that they have terminated the planned combination of CF Industries with specific assets of OCI after the U.S. government’s new tax inversion rules scuppered the merger.
CF Industries, in Aug 2015, agreed to purchase the European, North American and Global distribution assets of OCI N.V. in a deal worth around $8 billion, including assumption of roughly $2 billion in debt. The deal included OCI’s nitrogen production plants in Geleen, Netherlands, and Wever, IA, and its interest in an ammonia and methanol complex in Beaumont, TX, along with its global distribution assets in Dubai, UAE.
The companies amended their merger agreement in Dec 2015 and changed the jurisdiction of incorporation and tax residency of the proposed combined company to the Netherlands from the UK after the U.S. government took certain steps to crackdown on tax inversions.
The companies noted that, by being tax resident in the Netherlands, the combined company would satisfy the requirements of the U.S. Department of the Treasury’s notice issued in Nov 2015. The new Treasury rules are aimed at reducing the tax benefits available to companies that move their tax residence overseas to avoid paying taxes.
The Treasury, in Apr 2016, announced additional actions to further curb corporate tax inversions. These aggressive actions are aimed at reducing the economic benefits of inversion and slow the pace of inversion deals. The rules would make it more difficult for U.S. companies to qualify for a tax inversion. Since then, CF Industries and OCI have been exploring alternative transactions and structures that would be attractive to their respective shareholders.
However, the companies failed to come up with an alternative acceptable to both parties and, as a result, agreed to end the merger. CF Industries and OCI said yesterday that the Treasury actions “materially reduced” the structural synergies of the merger. Per the deal terms, CF Industries will pay OCI a $150 million termination fee.
The termination of the OCI deal is another blow to CF Industries after its merger talks with Norwegian fertilizer maker Yara International ASA (YARIY - Free Report) was terminated in Oct 2014 as the companies were unable to agree on the terms of a transaction that met the requirements of all their respective shareholders. The U.S. Treasury’s crackdown on inversions also led to the termination of the proposed $160 billion mega-merger between Pfizer (PFE - Free Report) and Allergan last month.
The merger of CF Industries and OCI assets would have created a global nitrogen behemoth with combined production capacity of around 12 million nitrogen-equivalent nutrient tons. The combined entity would have emerged as the world’s biggest publicly traded nitrogen company.
The merger was expected to boost CF Industries’ production capacity by 65% and also extend the company’s portfolio into the rapidly growing methanol market. The combination was also expected to deliver around $500 million (post-tax) in annual run-rate synergies through optimization of operations, capital and corporate structure.
CF Industries continues to see pricing pressure in its nitrogen business. Urea prices have been under pressure due to higher supply from Chinese producers. Global capacity expansion continues to exert pressure on urea and other nitrogen fertilizer prices, mainly urea ammonium nitrate (“UAN”).
Lower selling prices weighed on CF Industries’ bottom line in first-quarter 2016 as the company saw a roughly 89% plunge in its profits. Elevated supply in the global nitrogen market and weaker demand for ammonia globally pressured pricing in the quarter. Nitrogen prices are expected to remain under pressure in the near term due to higher supply.
CF Industries’ shares rose roughly 4.4% to close at $29.85 yesterday.
CF Industries is a Zacks Rank #3 (Hold) stock.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>