If Agrium Gives Up Bid, CF Industries Could Slide - UBS

Canadian agri-business Agrium Inc. (AGU) announced Tuesday it will continue to pursue a hostile takeover of U.S. competitor CF Industries Holdings Inc. (CF) after 62% of shareholders accepted the company's latest bid.

The American fertilizer company is resisting, but if Agrium is unsuccessful it could have serious downside consequences for CF, UBS analyst Brian MacArthur said in a new note responding to the news Tuesday.

He said:

Should Agrium abandon its bid, CF’s valuation premium to that of industry peer Terra (TRA) could narrow or close, indicating estimated potential downside of ($6-$12) per share. Should CF then continue to pursue a deal with Terra, the stock price could decline further if CF materially raises its bid.

CF is in the middle of a hostile takeover bid of its own, trying to acquire Terra Industries Inc.

As for the deal itself, Agrium has extended its deadline to next month. The company is currently offering $40 and one common share per CF stock. CF industries was trading at about $71 on Tuesday.

Mr. MacArthur said:

We believe the key to any successful deal rests with CF’s board, and that AGU cannot legally compel CF to negotiate. Should CF’s board reject AGU’s overtures, CF could remain independent.

Agrium chief executive Mike Wilson said in a statement:

CF stockholders have sent a resounding message to CF's Board that they support Agrium's offer. CF stockholders clearly understand that the Agrium offer is far superior to any alternative articulated by CF.

CF chief executive Stephen Wilson came out swinging shortly after Agrium's announcement, declaring in a statement of his own that the offer was unacceptable.

Mr. Wilson said:

Contrary to Agrium's assertions, the tender offer results do not change the facts that Agrium's offer substantially undervalues CF Industries, our shareholders do not support the price in the offer, and the offer has significant regulatory issues.

As for UBS, Mr. MacArthur is maintaining his "Neutral" rating and 12-month price target of $47.50.