CF Industries Still Waiting to Hear from Terra Industries

As of this entry, Terra Industries (TRA) has not issued a response to CF Industries' (CF) unsolicited offer, nor has it given any indication as to when it intends to respond. Presumably, TRA will announce a decision on the offer before the company's scheduled Q4 earnings report on February 10.

It will again be stated that the current offer is perceived as adequate under the current circumstances and as such TRA is not expected to summarily reject the offer or in any way create a hostile situation. If TRA does not accept the offer, it is generally anticipated that it will leave open the possibility of open negotiations with respect to a formal agreement.

If a formal merger agreement is reached, there appears to be some chance, albeit relatively small, of some regulatory interest due to overlaps in the nitrogen fertilizer segments. Both companies are players in the broad nitrogen fertilizer segment and in the more niche area of urea. The key to this proposed combination is that Agrium (AGU) has established itself as the leading player in this industry with a market share exceeding 40% in virtually every nitrogen-related category. The rationale behind this combination -- which should also serve to influence TRA's decision -- is to create a challenger to Agrium's near-dominance in this industry.

In short, if any regulatory delays were to occur, they would be strictly "educational" in nature, which would not be terribly surprising in many cases during the initial period of DOJ/FTC transition. However, in a situation like this, it should be very obvious that a combined TRA/CF would effectively created a stronger competitive landscape among the top-tier players of a fairly small industry. The chances of an HSR second request (or non-U.S. delays, such as Canadian Competition) are seen as very small in this potential deal: -15%.