Terra Industries Rejects CF Industries' Latest Bid Proposal
Thursday October 1, 2009, 7:30 am EDT
SIOUX CITY, Iowa--(BUSINESS WIRE)--Terra Industries Inc. today announced that its Board of Directors, with the assistance of its financial and legal advisors, has unanimously concluded that the most recent version of CF Industries Holdings, Inc.’s unsolicited proposal dated September 28, 2009, is not in the best interests of Terra or Terra’s shareholders.
“Over the last nine months, our Board has reviewed five proposals from CF – and each time the Board has unanimously determined that a combination of our companies lacks compelling industrial logic and runs counter to Terra’s strategic objectives,” said Terra President and CEO Michael Bennett.
“Terra has focused on building upon our considerable strengths as a ‘pure play’ nitrogen company. A combination with CF would threaten the value we believe we will deliver through the continued execution of our strategy,” Bennett continued.
“We believe that CF’s proposal is not strategically attractive, and fails to appropriately value Terra either on an absolute or relative basis with CF,” said Henry R. Slack, Chairman of the Board of Terra. “In addition, we believe that the pending offer from Agrium creates enormous uncertainty both as to how to value CF’s acquisition currency, which we believe is inflated as a result of Agrium’s premium bid to acquire CF, and because we believe that CF shareholders are likely to prefer an Agrium transaction if they are given a choice.”
None of the proposals that CF has made to the Terra Board over the last nine months have shown any material improvement over the initial unsolicited offer that CF launched on January 15, 2009. Terra's Board has been consistent in its assessment of the flaws in the proposals and the lack of strategic or financial merit in a combination between Terra and CF. Among the Terra Board’s reasons for rejecting CF’s proposals have been the following:
- A combination with CF runs counter to Terra’s strategic objectives which are designed to provide substantial value differentiators to Terra’s shareholders. Terra will deliver greater value for its shareholders than CF’s proposed combination.
- Terra’s Board of Directors believes that Terra management’s continued execution of its strategic plan, which features upgraded products expansion, growth through leadership in emissions reduction markets and opportunistic acquisition of assets consistent with Terra’s end markets focus, will deliver more value to shareholders than CF’s offer with significantly less risk.
- Terra has deliberately pursued a strategy of lowering its dependence on agricultural ammonia sales by, among other activities, upgrading its product mix to urea ammonium nitrate solutions and industrial ammonium nitrate and increasing its sales into industrial and environmental markets. A combination with CF would shift that focus back to agricultural ammonia. Moreover, Terra has deliberately located its core manufacturing assets away from the U.S. Gulf Coast, where import competition is most severe. A combination with CF, which has 73% of its total ammonia production on the U.S. Gulf Coast, would undercut Terra’s geographical advantages.
- Terra has focused on building upon its considerable strengths as a “pure play” nitrogen company, and has sought to avoid confusing its business model with minor operating positions in or reselling other nutrients. A combination with CF would expose Terra’s shareholders to risks associated with the phosphate fertilizer market without compelling scale in that nutrient.
- Terra's Board of Directors believes that Terra has effectively and prudently managed its financial resources by maintaining adequate liquidity and focusing on opportunities to acquire assets that complement its business and fit its strategic objectives and long-term industry trends. At the same time, Terra has maintained its emphasis on delivering shareholder value, returning 35% of net income to shareholders over the past three years. Last week, Terra also announced plans to pay a special cash dividend of $7.50 per share later this year.
- Terra has spent much of the last seven years developing its environmental services business in both stationary and, more recently, automotive markets to diversify its customer base outside of core agricultural markets. This business diversification approach has not been evident at CF and Terra’s Board of Directors believes a combination of CF’s business with Terra may jeopardize the focus necessary to grow this business.
- CF’s proposal is opportunistic and substantially undervalues Terra on both an absolute basis and relative to CF. Terra’s Board of Directors believes that CF’s proposal does not fully reflect the underlying fundamental value of Terra’s assets, operations and strategic plan.
- CF’s proposed exchange ratio of 0.465 CF shares per Terra share (which CF has said will be adjusted downward if Terra declares its special cash dividend of $7.50 per share) does not reflect Terra’s much larger contribution of nitrogen results to the combined entity. While Terra would contribute approximately 59% of the nitrogen results of the combined entity (based on full year 2008 results), Terra shareholders would receive only 48.5% of the equity pre-dividend, reduced to approximately 43.2% post-dividend (based on CF’s stock price at September 25th).
- CF’s proposed “Contingent Future Shares”, the sole purpose of which is to claw back consideration from Terra shareholders, could result in an actual exchange ratio of only 0.4224 CF shares per Terra share, or 46.1% of the combined company (reduced to approximately 40.9% post-dividend (based on CF’s stock price at September 25th)). That is lower than CF’s original unsolicited bid in mid-January.
- CF’s non-binding proposal, as well as Agrium’s pending offer for CF, create significant uncertainty for Terra’s shareholders.
- CF has terminated its exchange offer for Terra, and its merger proposal is not a binding offer to Terra or its shareholders. For example, CF’s proposed merger is conditioned upon CF’s satisfactory due diligence of Terra.
- In addition, Terra’s Board of Directors believes that CF’s projected synergies claims are aggressive, particularly given CF’s lack of experience in acquisitions of any consequence, and the proposed combination is subject to substantial execution risk.
- Terra’s Board of Directors believes that Agrium’s premium bid for CF creates significant uncertainty as to whether a transaction would in fact occur, given the risk that CF shareholders would prefer the Agrium transaction and would not approve a transaction with Terra if given the choice.
- Terra’s Board of Directors also believes that CF’s stock price has been inflated as a result of Agrium’s pending offer for CF. As a result, the actual value of CF’s offer could be significantly lower than current trading prices would indicate.
Credit Suisse Securities (USA) LLC is serving as Terra’s financial advisor, and Cravath, Swaine & Moore LLP and Wachtell, Lipton, Rosen & Katz are serving as legal counsel to Terra. MacKenzie Partners, Inc. is serving as proxy solicitor for Terra.
Terra Industries Inc., with 2008 revenues of $2.9 billion, is a leading North American producer and marketer of nitrogen products.
Source: Terra Industries Inc.
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