CF Industries Renews Terra Bid

CF Industries Holdings Inc. (CF - Analyst Report) recently increased its offer for rival Terra Industries Inc. (TRA) to about $4.59 billion as it seeks to end an almost 11-month pursuit of the nitrogen-fertilizer maker. The offer represents an 18% premium over Terra’s closing price on Dec 4. The bid of $36.75 in cash and 0.1034 of a CF share for each share of Terra includes the $7.50 a share dividend Terra declared in September this year. CF’s previous offer was $32 in cash and 0.1034 of a CF share, including the dividend.

CF Industries has been seeking to acquire Terra since January, offering $2.1 billion while fending off a hostile bid from Agrium Inc. (AGU - Analyst Report) itself. The outcome of the three-way battle will determine whether Agrium or CF will become the world’s second-largest publicly traded maker of nitrogen-based fertilizers. Terra has rebuffed CF’s previous offers on the ground of undervaluation.

CF Industries has a leading market share in many key fertilizers. It is prepared for a reasonably good application season (weather permitting) and solid spring demand due to attractive corn farming economics and restocking needed by the downstream fertilizer channels.

Prices for granular urea and other nitrogen-based fertilizers have advanced since the end of October amid rising corn prices. The industry's drive for consolidation intensified at the start of the year when fertilizer company share prices had been pulled down. As the economy declined, struggling farmers scaled back demand for fertilizer, driving down prices that fertilizer companies charge as well as the price of their shares.

Our Neutral recommendation on CF Industries remains unchanged at this stage.

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