CF Buyout Bid Grossly Undervalues Terra Industries

Includes: CF, TRA
by: Tim Plaehn

Terra Industries weighs $2.1B takeover bid: Financial News - Yahoo! Finance.

This bid by CF Industries (NYSE:CF) sucks for Terra Industries (TRA) shareholders. I think the stock is grossly undervalued. I wrote here that TRA had a valuation problem when you look just at the company’s cash holdings and the value of their stake in Terra Nitrogen (NYSE:TNH). The market values the non-TNH part of Terra’s business, which generates 70% of their revenues at less than zero.

I do see a couple of positives in this bid:

  • First, it puts TRA in play and may end up pushing the stock back up to a reasonable level.
  • Second, if the purchase does go through, shareholders will end up owning shares of CF, which is in the same industry.

This was a smart move by CF to try to pick up Terra’s assets on the cheap. Let us hope this bid starts a bidding war and the shares continue to appreciate.

Note: TRA is a component of this site’s hypothetical Opportunities Portfolio.