CF Industries Holdings (CF) has taken a step forward in its prolonged battle for acquisition of Terra Industries (TRA). The Illinois-based fertilizer company raised the fixed exchange ratio to 0.465 shares of CF Industries for each Terra common share.
Since January 2009, CF has been wooing its Iowa-based rival in an all-stock deal worth $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 March 5, citing undervaluation of the company.
In response, CF increased its offer price on March 9, to $2.77 billion, or $27.50 for each Terra share, and again on March 23, to $3.07 billion, or $30.50 each, by agreeing both times to an exchange ratio of not less than 0.4129 and not more than 0.4539 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 again rejected CF’s offer the next day, citing the same reason of undervaluation.
The new exchange ratio is stated to 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 shares trades at more than $115 each over a certain period after completion of the potential transaction.
CF anticipates the proposed deal to produce annual cost savings of $105 million–$135 million. Terra commented that its Board will look at the new bid by the end of this month.
We recommend the shares of CF as Neutral.
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