Stone Fox Capital's  Instablog

Terra Industries (TRA) announces a $7.50 special dividend to be paid sometime in Q4 assuming they successfully complete some debt deals consisting principally of a $600M debt financing that pays for a portion of the special dividend.

• 4:17PM Terra Industries announces plans for $750 million special cash dividend ($7.50/share) and is commencing tender offer for 7.00% senior notes due 2017 (TRA) 36.49 +0.34 : The co announces that it plans to return an aggregate of approximately $750 million in cash to shareholders through a special cash dividend of $7.50 per share, expected to be declared and paid in the fourth quarter of 2009. Terra also announced that Terra Capital, Inc. is commencing a tender offer and consent solicitation to purchase any and all outstanding 7.00% Senior Notes due 2017 of the Company (the "2017 Notes") for cash at a price equal to 104.5% of par, including a consent fee. In addition, Terra plans to raise up to $600 million of capital through a debt financing. After giving effect to the tender offer and special dividend, and assuming a debt financing of $600 million, Terra would have approximately $500 million of cash, net of prepayments.

Boy, what to make of this deal. Its clearly a ploy to block CF Industries from completing a takeover of TRA. Its also the type of moves we hate at Stone Fox Capital. Any time a company is playing around with financial instruments it gets complicated and the focus leaves the primary business. Why not just up the regular dividend to the 2-3% range to attract more investors? Who wants basically a 20% dividend that requires investors to pay taxes in 2009? I'm not sure it does much long term for investors either.

The stock is up 5% after hours so the market likes it for now. We bought this stock for the hopes management would accept the CF deal and we'd roll our stock on over and participate in the ag sector that way, but at higher prices. Its now turning into a soap opera and we wonder about the ramifications if this comes unraveled. The move after hours also supports our original thoughts that the stock price wasn't pricing in the CF deal.