By Ilan Brat
U.S. fertilizer maker CF Industries Holdings Inc. agreed to buy
parts of a Dutch competitor for about $8 billion and shift its
headquarters to the U.K., creating a global nitrogen-fertilizer
powerhouse with a significantly lower tax bill.
The so-called tax inversion deal would combine CF with OCI NV's
European, North American and global distribution operations. The
transaction would create the world's largest publicly traded
nitrogen fertilizer company and lower CF's overall tax rate to 20%
from the current 34%, CF said.
Under the agreement, the companies plan to form a holding
company domiciled in the U.K. in which shareholders of Deerfield,
Ill.-based CF would own a 72.3% stake. The remainder would be held
by shareholders in OCI. The deal is valued at $8 billion based on
CF's current share price and the assumption of $2 billion in
debt.
Tony Will, chief executive of CF, said on a conference call with
investors Thursday that it pursued the purchase because of
expansion prospects, not to lower its tax rate. "This is not a
tax-driven deal," he said. "I would view this as a combination with
great industrial logic."
CF shares jumped about 3.8% to $63.97 in midmorning trading.
The CF-OCI deal is the latest from chemical companies that have
announced more than $50 billion of tie-ups in the past year. It
also marks the latest in a partial revival of controversial
tax-inversion deals. A wave of companies struck such deals last
year before the U.S. Treasury put in place rules aimed at curbing
them, in an effort to keep tax revenue from shifting overseas, but
the moves didn't completely quash the deals.
CF said North America imports about 40% of its nitrogen
fertilizer, which is heavily consumed by corn and other crops, and
CF's plants in the U.S. and Canada are at capacity trying to fill
current demand. The two companies are building four new plants that
would boost their production capacity 65% in the next two years. At
the same time, CF sees new opportunities through OCI to grow
exports to Europe and Brazil. Logistics, tax and other savings will
eventually lower costs by about $500 million annually, CF officials
said Thursday.
CF, which has about $5 billion in annual sales, last year held
merger talks with Norway's Yara International ASA in an attempt to
create the world's largest nitrogen-fertilizer company. The talks
fell apart as the two sides failed to agree on terms.
A steep decrease in U.S. natural gas prices in the past decade
spurred by a huge increase in U.S. shale-gas production has
benefited CF. Natural gas is a key raw material for making nitrogen
fertilizers. Its price decline has allowed CF to buy back $5.4
billion worth of its shares since 2011.
Maarten van Tartwijk contributed to this article.
Write to Ilan Brat at ilan.brat@wsj.com
Write to Maarten van Tartwijk at maarten.vantartwijk@wsj.com
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