CF Industries and Agrium - Already Engaged?

The fertilizer soap continued Tuesday when Terra Industries (TRA), with virtually the same wording as in the past, rejected CF Industries' (CF) enhanced offer and stated that they are not interested in merging with CF Industries; the focus now is set for some clear developments between Agrium (AGU) and CF Industries.

The reality is that CF and Agrium are probably already engaged (formally) and communicating with some form of objective around the actual price and terms required in order to complete a merger; After all, CF management did not just throw out a $100+ figure out of nowhere, this is likely the target and expectation that has been discussed with Agrium in order to get the deal done with CF management support.

Agrium is a smooth and efficient operator with the knowledge and patience to be able to distinguish the actual starting bid versus actual purchase price, the current offer by all means was the starting bid price in order to initiate CF management and gain a clear vision to the endgame, which currently seems to be set around $100. With Terra’s rejection of the enhanced CF bid Tuesday, look for CF to gain traction as they distance themselves and likely withdraw from the Terra drama in order to drive negotiations forward with Agrium.

Agrium knows what it needs to get the deal done and is aware of the huge cash position that CF Industries has on its books. With Agrium’s ability to integrate efficiently and develop economies of scale, this combination will have the confidence and ability to be a cash generating super power in the industry going forward.

The bottom line is that the separation between CF & Terra will likely occur (based on Tuesday’s developments and comments around $100 per share Monday by CF management), paving the way for the marriage between Agrium and CF Industries; time is of essence and I believe that Agrium will likely want to conclude a deal without distractions sooner rather than later, with the likely closer to be in the neighborhood of the $100 price mentioned Monday.

Disclosure: Long CF

Comments

[Tip O'Neill:]

The battle between Terra, CF and Agrium is multidimensional and will play out well beyond the companies’ skirmishes with their investors. Considerable and vocal resistance is developing at the farm level to the ongoing consolidation in the fertilizer industry. Farmers and Ag Retailers have been whipsawed by crop nutrient prices in the last 12 months creating a hostile political environment. These proposed mergers will be amongst the first confronted by the new administration in Washington. Equally interesting is the approach that the Canadian Competition Bureau might take in light of the new amendments (similar to Hart Scott Rodino) to the Competition Act. cb-bc.gc.ca/eic/site/c... Stay tuned!

Mar 26 10:21 AM