3rd UPDATE: Agrium Will Keep Capacity If CF Bid Succeeds -CEO
February 25 2009 - 2:00PM
Dow Jones News
The top executive at Agrium Inc. (AGU) said it was the right
time to buy rather than build fertilizer production after proposing
a $3.6 billion bid for CF Industries Holdings Inc. (CF).
Mike Wilson, chief executive of Calgary-based Agrium, said there
were no plans to reduce capacity if it is successful in an approach
that would break its target's own hostile bid for Terra Industries
Inc. (TRA), another U.S.-based producer.
The global fertilizer industry is awash with capacity after a
sharp climb in prices led farmers to defer and reconsider orders
following the slide in global commodity prices since last
August.
"When you look at buy versus make, it's the right time to buy,"
Wilson told Dow Jones Newswires.
He said Agrium's bid plan was accelerated after CF Industries
launched its bid for Terra, having tracked the Illinois-based
company since unsuccessful acquisition talks in 2005.
He made no comment on whether sector valuations have bottomed
after a dramatic spike and relapse over the past 18 months.
The proposed combination would create the world's fourth-largest
provider of crop nutrients, with annual sales of almost $14
billion, and a global leader in nitrogen-based products as well as
phosphate and potash products.
Agrium said it would offer the equivalent of $72 a share in cash
and stock for CF Industries - based on Tuesday closing prices - and
aimed to close by the end of the second quarter.
Wilson said he had talked to CF Industries' CEO Steve Wilson
Wednesday, who said any response would be up to the board.
Directors later issued a statement, and said the board would make a
determination on Agrium "in due course."
CF launched a proxy battle and an all-stock tender for Terra on
Monday after its unsolicited offer was rejected by its target's
board. The offer expires May 15.
Agrium's Wilson said the company had no interest in acquiring
Terra.
Investors in the fertilizer sector have seen a boom-and-bust
cycle over the past 18 months,with stock values doubling on soaring
demand and prices before commodity markets reversed course from
record highs in mid-2008.
However, fertilizer, seed and farm equipment producers remain
bullish on long-term demand trends driven by demographic changes,
notably rising demand in emerging markets.
Agrium's Wilson said nitrogen capacity shut in at the end of
last year was restarting and phosphate demand was "coming back",
though appetite for potash was "still off."
Commodity prices remain well above their five-year averages, and
analysts expect demand and supply conditions to balance as
producers cut inventory. Demand will hinge in part on the level of
fertilizer-intensive corn planting in the northern hemisphere this
year.
CF acknowledged antitrust issues in its own pursuit of Terra,
although it said these could be overcome, while Agrium's Wilson
said no such problems are seen for its proposed combination.
Agrium said it would offer one of its own shares and $31.70 in
cash for each CF Industries share, a proposal that was fully funded
from internal and external resources and not expected to impact its
credit rating.
The terms represent a 30% premium over CF Industries' Tuesday
close, but after climbing as high as $66.58 earlier Wednesday, the
stock was recently up 11.3% at $61.08, having peaked last year at
$172.99.
Agrium shares were down 7.4% at $37.30 on Wednesday, having slid
from a peak of $113.88 last June. Terra was off 1.2% at $24.52.
Agrium's Wilson said the North American operations of Agrium and
CF Industries were complementary, adding its target's strength in
the eastern corn belt and Gulf coast to the Canadian company's
presence in the west. Internal distribution was also viewed as a
good fit.
Agrium is targeting synergies of about $150 million from the
combination within three years of closing. Wilson said it would be
accretive to earnings in 2010 and "highly" accretive the following
year.
-By Doug Cameron, Dow Jones Newswires; 312-750-4135;
doug.cameron@dowjones.com
(Carolyn King and Rebecca Townsend contributed to this
report.)