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Nov-04-2009Terra Industries Rejects CF's Revamped Takeover Offer(topic overview)
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Hostile bidder CF Industries Holdings Inc. (NYSE:CF) sent a letter directly to Terra Industries Inc. (NYSE:TRA) telling it to vote in favor of the three proposed independent nominees to Terra's board on Nov. 20. CF Industries pointed out its new $4.1 billion offer for the fertilizer rival now includes a cash component and $2.5 billion in financing from Morgan Stanley (NYSE:MS). On Wednesday morning, Sioux City, Iowa's Terra gave a list of reasons why its board and financial advisers unanimously rejected the new Nov. 1 proposal as "inadequate, opportunistic and not in the best interests of Terra and its shareholders." Among the reasons, it pointed out Terra's ability to "continue to make strategic and opportunistic acquisitions" that build shareholder value, such as Terra's pending acquisition of a 50% interest in Agrium Inc.' s (NYSE:AGU) Carseland nitrogen manufacturing facility for $250 million and its acquisition of Mississippi Chemical Corp. Canadian fertilizer maker Agrium agreed to the Carseland deal as part of its own hostile bid to acquire CF Industries for about $4.7 billion, or 1 Agrium share and $40 in cash per CF share. [1] SIOUX CITY, Iowa — Fertilizer company Terra Industries Inc. on Wednesday rejected rival CF Industries' latest unsolicited takeover offer, saying the $4.1 billion bid was still too low. Terra's said its board of directors unanimously rejected the latest offer, calling it "inadequate, opportunistic and not in the best interests of Terra and its shareholders." Earlier this week, CF Industries Holdings Inc. — which has pursued Terra since January — raised its offer by adding cash to the bid. It said the new bid was worth $40.61 per share, a 5 percent premium on CF's previous all-stock offer. In response to Terra's rejection of the offer, CF said it "is confident" that Terra stockholders will show their support for the bid by voting for three of CF's nominees for Terra's board. Since October, CF has urged Terra shareholders to vote for its nominees.[2]
The seemingly never-ending battle between the fertilizer makers CF Industries and Terra Industries will live on for another day after Terra rejected CF'''s latest takeover attempt on Wednesday, saying the offer was '''inadequate, opportunistic and not in the best interests of Terra and its shareholders.''' CF Industries made its first move on Terra in January, offering $2.1 billion for the smaller Iowa-based fertilizer maker. The two have battled back and forth, while CF has been fighting off its own hostile bidder, Agrium of Canada. On Sunday, CF Industries increased its takeover bid for Terra to about $4.05 billion, from $3.86 billion, and announced that it received $2.5 billion of financing from Morgan Stanley, which is significant in that it is the biggest leveraged loan commitment by a single bank so far this year.[3]
TORONTO, Nov 4 (Reuters) - U.S. fertilizer maker Terra Industries ( TRA.N ) said on Wednesday it's board has reviewed CF Industries ( CF.N ) latest takeover proposal and unanimously rejected it as inadequate. CF, which has been pursuing Terra since January, raised its bid for Terra on Sunday and changed the structure of its offer to mostly cash.[4]
TORONTO/NEW YORK (Reuters) - Fertilizer maker Terra Industries Inc (TRA.N: Quote, Profile, Research ) rejected a sweetened $4.1 billion takeover bid from rival CF Industries Holdings Inc (CF.N: Quote, Profile, Research ) on Wednesday in the latest twist in a takeover battle going on since January.[5] Terra Industries Inc.' s directors unanimously rejected fertilizer giant CF Industries Holdings Inc.' s latest bid to acquire the company, calling the offer inadequate.[6]
The bid includes a special dividend of $7.50 a share that Terra plans to pay. CF's revised offer, when it was announced, was about 5 percent higher than its previous all-stock bid of 0.465 CF share for each Terra share. Terra said its board had reviewed CF's latest proposal and unanimously rejected it as inadequate. Sioux City, Iowa-based Terra said the proposal continues to undervalue its near-term and long-term prospects. It called the offer opportunistic and said it was not in the best interests of Terra and its shareholders.[5] CF had sweetened its bid for Terra after five earlier tries, offering $32 in cash plus a fraction of a CF common share for each Terra share, lifting the value of the proposed deal to about $4.1 billion, or $40.61 a share. Terra shares ended trading Tuesday at $34.88; in premarket trading Wednesday, they were changing hands at $35. Terra -- which has hired two anti-takeover heavyweights, the New York law firms Cravath Swain & Moore and Wachtell Lipton, to help it thwart CF's advances -- said in a press release Wednesday morning that its board has "unanimously rejected as inadequate, opportunistic and not in the best interests of Terra and its shareholders."[7]
As for Terra, it said it continues to feel the CF offer "undervalues" the company. Its board went so far as to suggest a price at which it might agree to a deal. Using several of CF's own metrics, including a multiple of 6.7 times earnings before interest, taxes, depreciation and amortization, and an "industry acquisition multiple" of 7.6 times mean EBITDA, Terra said its enterprise value would be $4.65 billion using the former model and $5.27 billion the latter, or $51.55 and $57.74 per share, respectively.[7]
Terra is based in Sioux City, Iowa. Earlier this week, CF Industries — which has pursued Terra since January — raised its offer by adding cash to the bid. It says the new bid was worth $40.61 per share, a 5 percent premium on CF's previous all-stock offer.[8] SIOUX CITY, Iowa — The fertilizer company Terra Industries says it is rejecting rival CF Industries' latest takeover offer.[8] SIOUX CITY, Iowa ( TheStreet ) -- For the sixth time, Terra Industries ( TRA Quote ) has spurned its suitor, rival fertilizer concern CF Industries ( CF Quote ).[7]
The Sioux City, Iowa, fertilizer maker said CF is projecting Terra's earnings to be some 25% less than Terra's projection.[6]
Sioux City, Iowa-based Terra said CF's latest proposal continues to undervalue Terra's near term and long term prospects.[4] Analysts have estimated Terra's 2010 ebitda at $506m. Terra was "well positioned to take advantage of an upsurge in demand' as the economic recovery continues", chief executive Michael Bennett said, dismissing CF's latest bid, which was earlier this week raised by about $190m to $4.1bn. "CF's latest proposal fails to appropriately value Terra's world class assets, strategic advantages and prospects," he said.[9] Terra says CF's $4.1 billion bid significantly undervalues the company's shares.[8]
Deerfield-based CF Industries Holdings Inc. will pay at least 6 percent in interest on the $1.3 billion bank facility it has arranged to finance its hostile takeover of Terra Industries Inc.[10] Morgan Stanley is offering to provide a $1 billion term loan and a $300 million revolving credit line with interest rates 3.75 percentage points more than the London interbank offered rate, according to a commitment letter CF Industries attached today to a regulatory filing. Both five-year loans will have Libor floors of 2.25 percent, according to the letter. Along with a $1.2 billion bridge loan, the financing is the biggest leveraged loan commitment by a single bank this year.[10] Should CF Industries not repay the bridge loan at the end of one year, the debt will convert to a seven-year term loan.[10]
Terra Industries forecast a huge jump in underlying earnings next year - to nearly 40% above the level Wall Street is expecting ' as it rejected CF Industries' fourth bid attempt as "inadequate and opportunistic".[9] According to The Deal Pipeline (subscription required), the relatively large spread on the potential Terra deal reflects concerns that Agrium will make a blowout bid for CF Industries before the Terra meeting date.[1]
The fertilizer generalist, which owns about 7% of Terra, hopes to get three nominees elected at the Terra annual meeting on November 20. "CF Industries is confident that Terra stockholders will show their support for its offer by voting for CF Industries' three highly-qualified, independent nominees," the group said.[9] Muddying up the water, Terra recently entered into an agreement to acquire 50 percent of Agrium'''s Carseland nitrogen manufacturing facility and its Mississippi Chemical unit if Agrium acquires CF. Resolution of the three-way battle could come as quick as Nov. 20, when Terra holds its annual meeting. Three Terra board members are up for election and both management and CF have put up their own slate of candidates. While CF has not started an exchange offer or a proxy contest, the election of its directors would be a clear sign to management that shareholders back a CF takeover.[3] CF itself is trying to fend off a hostile takeover bid from Canadian fertilizer maker and agricultural products retailer Agrium Inc (AGU.TO: Quote, Profile, Research ). Agrium (AGU.N: Quote, Profile, Research ) on Wednesday reported a 93 percent plunge in its third-quarter profit, largely due to lower prices and margins on crop nutrient sales.[5]
There may be at least some merit to Terra's claims. It's been understood that CF has pursued Terra largely as a way to put off the advances of its own unwanted suitor, Agrium ( AGU Quote ).[7]
"Terra's board and management team always have and will continue to remain open to considering any bona fide opportunity to create meaningful value for shareholders." The group said that combining its estimates with earnings multiples that CF has claimed to be offering came up with a figure of $51.55 a share using data for the coming year, and $57.74 for historic ebitda.[9] Terra chairman Henry Slack left the door open to a deal at better terms than the $40.83 a share offered by CF at Wednesday's share prices.[9] Shares in CF stood $0.05 lower at $85.38 in early deals in New York.[9]
CF on Sunday offered $32 in cash and 0.1034 of a share of CF common stock for each Terra share.[5] Shares of Terra rose $1.18, or 3.4 percent, to $36.06 in morning trading Wednesday.[2]
CF estimates that Terra'''s 2010 earnings before interest, taxes, depreciation and amortization will be $525 million, while Terra projects the amount at $694 million.[3] Profits - as measured by earnings before interest, tax, depreciation and amortisation (ebitda) ' would hit $694m, Terra said, reflecting "robust" operating margins and noting low prices of natural gas, a key raw material for nitrogen groups.[9]
'''Terra is a pre-eminent pure-play nitrogen company, and through the continued execution of our strategy is well positioned to take advantage of an upsurge in demand from our agricultural and industrial customer base as the economic recovery continues.''' Terra believes CF'''s latest offer underestimates its future earnings power.[3] CF, saying that it had made a "full, fair and compelling offer", set the stage for scramble for investor support by sticking by hopes for swinging the deal through electing candidates to the Terra board.[9] Terra's board unanimously rejected the most recent offer and said it was "inadequate, opportunistic and not in the best interests of Terra and its shareholders."[11]
In a separate statement, CF said on Wednesday it had made a "full, fair and compelling offer" that gave shareholders certainty of value and closing. CF has put a slate of three directors up for election at Terra's annual meeting later this month.[5] CF Industries, based in Deerfield, Ill., has been resisting offers by Canadian rival Agrium Inc., which has been trying to take over CF since February.[2]
CF is confident that stockholders will show support for the bid by voting for three of CF's nominees for Terra's board. [11]
SOURCES
1. Terra rejects CF Industries' latest bid (Corporate Dealmaker)
2. The Associated Press: Terra rejects CF's latest takeover offer
3. Terra Rejects CF's Latest Bid - DealBook Blog - NYTimes.com
4. UPDATE 1-Terra rejects CF Industries' latest proposal | Deals | Mergers & Acquisitions | Reuters
5. Terra Industries rejects sweeter bid from rival CF | Deals | Reuters
6. Terra Rejects CF's Latest Offer - WSJ.com
7. Terra Rejects CF Industries' Bid . Again | Industrials | Financial Articles & Investing News | TheStreet.com
8. The Associated Press: Terra rejects CF's latest takeover offer
9. Agrimoney.com | Terra forecasts huge profits jump as it snubs CF
10. Daily Herald | CF to pay at least 6% on $1.3 billion Terra takeover financing package
11. Terra Rejects CF Industries' Most Recent Bid (TRA,CF) - Comtex SmarTrend Alert
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