Tuesday, March 2, 2010

CF Industries gets hostile with their offer for Terra Industries. GOOD. (CF, TRA)

Shares of Sioux City Iowa fertilizer firm Terra Industries are up 12.5% on a hostile buyout offer from CF Industries (CF).  The offer of $46.87 trounces the deal that is currently under way, a $41.10 offer from Yara International.

In the February press release announcing the agreement with Yara, Terra's Chairman of the Board Henry Slack said:
“Our Board is unanimous in its firm belief that this transaction is compelling for our shareholders, customers, and employees” said Henry Slack, Chairman of the Board of Terra. “In December Terra paid a special cash dividend of $7.50 per share to our shareholders, and with this transaction, we have delivered a significant premium for their investment in Terra.”

Well, he was significantly wrong.  In a letter to the Terra board released today, CF Industries chairman and CEO eviscerates (politely of course, and totally appropriate) Terra management.  Terra would not let CF even look at their books so as to make an appropriate offer back in January, claiming that the company was "not for sale."  Yet then they agreed to a deal with Yara, without properly shopping the company for the best, highest price.  

This new Terra offer is made of up $37.15 in cash and .0953shares of CF for each TRA share held.  Even with today's 5% drop in CF's shares, the offer is over $5 higher that the currently agreed to deal.  

The letter:

March 2, 2010

Board of Directors
Terra Industries Inc.
Terra Centre
600 Fourth Street
P.O. Box 6000
Sioux City, Iowa 51102-6000

Henry R. Slack, Chairman of the Board

Michael L. Bennett, President and Chief Executive Officer

Dear Members of the Board:

CF Industries is offering to acquire Terra Industries for consideration per Terra share of $37.15 in cash and 0.0953 of a share of CF Industries common stock.  Our offer has a value per Terra share of $47.40 based on CF Industries closing price on Monday, March 1, 2010.  The offer is not subject to financing.  We intend to commence an exchange offer and will be prepared to accept shares for payment in 30 days.

We are sending a form of merger agreement to your advisors that would be signed once you have terminated your agreement with Yara.  Our offer is superior to Yara’s substantially lower, highly conditional offer.

As you acknowledged in your preliminary proxy statement, in early January we requested that Terra provide additional information so that we could be in a position to increase our offer.  As you are aware, we were advised that no information would be provided to us because “Terra is not for sale.”  Following this response, we withdrew our offer, and we have not had any further communication with you.

We do not understand how Terra could have entered into an agreement with Yara without giving CF Industries an opportunity to bid on a level playing field.  We also do not understand how Terra could have accepted an offer from Yara with a risk adjusted present value that we believe was not higher than the offer CF Industries had made in December 2009.  The value of any offer from Yara must be discounted for the lengthy period to closing, as well as the risk that numerous conditions beyond Terra’s control will not be satisfied, including regulatory, legislative and stockholder approvals.

We are more convinced than ever of the strategic benefits of this transaction.  This combination is clearly in the best interests of our respective stockholders, employees and customers.  We look forward to putting our two great companies together.


Stephen R. Wilson
Chairman, President and Chief Executive Officer
CF Industries Holdings, Inc.

Copyright 2010 AlphaNinja

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