CF Industries Holdings
(CF) announced today that it has extended the expiration date of its exchange offer for all of the outstanding shares of Terra Industries (TRA) common stock until Aug. 31. The offer was scheduled to expire at 5:00 p.m. Eastern time on Aug. 21.

Since January this year, the Illinois-based fertilizer company has been wooing its Iowa-based rival Terra in an all-stock deal for a total of $2.1 billion. Under the original proposal, each common share of Terra would have been entitled to receive 0.4235 shares of CF. However, Terra rejected the offer for the second consecutive time on Mar. 5, saying it undervalued the company.

In response, CF increased its offer price on March 9, to $2.77 billion based on $27.50 for each Terra share and again on March 23, to $3.07 billion based on $30.50 each by agreeing both times to an exchange ratio of not less than 0.4129 and not more than 0.4539 of each of CF’s share.

The third offer of $30.50 per Terra share was a premium of over 85% to Terra’s stock price before CF made the original offer on Jan. 15. Terra, however, again rejected CF’s offer the next day, citing the same reason of undervaluation.

In the beginning of August, CF sweetened the deal by raising the fixed exchange ratio to 0.465 shares of CF Industries for each Terra common share. This would bring about $1 billion in cash to shareholders of the combined company after the proposed deal closes. It would also distribute 5 million contingent future shares to CF stockholders. The contingent shares would be converted into CF stock if the stock trades at more than $115 per share over a certain period after the completion of the potential transaction.

As of Aug. 20, about 11.5 million shares of Terra common stock had been tendered into the exchange offer. CF anticipates the proposed bid to produce annual cost savings of $105 million–$135 million.

We recommend the shares of CF as Neutral.

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