Summary
Since the beginning of the year Agrium Inc. and CF Industries Holdings Inc. have been seeking to make a major acquisition in consolidation effort after drop in sector share prices. This week new offers went out and we might be reaching an end to this round of efforts as the outlook for the sector finally appears to be touching bottom.
Analysis
CF Industries this week sweetened its offer for Terra Industries Inc. by adding cash to its offer which it now values at $40.61 per share, or an increase of 5% to the last offer that Terra had rejected. CF Industries has been pursueing Terra since this January.
Not to be outdone, Agrium which made its first offer for CF Industries increased its bid with most cash and now stands at $45 cash plus 1 share of Agrium for each share of CF Industries. It has put a November 18th deadline this time. The CF Industries offer to Terra shareholders will come to a head on November 20th with the election of Terra's new board members.
CF Industries is hoping that Terra shareholders will finally push their offer through by electing board members they have nominated. So maybe, just maybe we will find out if there is a winner before Thanksgiving, or if everyone will continue to dine at their own table.
There are many ways to look at which merger makes more sense for the industry and for the shareholders. I believe that it is best to see the industry to consolidate and that the best of the proposals is CF Industries. There have also been rumors around this year of outside mining interesting entering the fertilizer industry which is also based on mining of natural resources. These rumors were mainly around Mosaic (Cargill, the major shareholder was even rumored as looking to sell its shares) and to a lesser extent PotashCorp with rumored buyers being Vale and BHP.
All of the sector has suffered this year from a combination of factors which have driven demand and prices down from their peak in early 2008. The wet spring and now a wet cool fall have reduced fertilizer applications in North America. South America started their planting a year ago when corn and soybean prices as well as credit were in the tank. China, the largest importer of potash, has not helped as it has held off purchases and imports all year to drive prices down. Farmers around the world will come back to the fertilizer market in more normal usage rate, which is why attention to this game of musical chairs merits attention until the music stops.
