The Fertilizer Wars Of 2009

By Sham Gad | December 28, 2009 AAA

Year 2009 certainly was not without its fair share of deals and takeover battles. None has been more interesting thus far than the one taking place in the fertilizer industry. For nearly a year, a tussle has been brewing that threatens to continue into December.

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First, There Were Two
It all began with a decline in fertilizer prices. As farmers loaded up on fertilizer to lock in supply in the wake of rising grain prices, fertilizer shares could do no wrong. Then, as the economy turned sour and commodity prices crashed, farmers all but seized the purchase of fertilizer in favor of using existing supply. This caused share prices to come down as quickly as they had gone up. Nitrogen supplier CF Industries (NYSE:CF) looked as if it were immune, as share prices continued to increase against a declining market. Then came Lehman, and everything fell through the floor.

Opportunistically, CF Industries figured it could expand cheaply by announcing a deal to acquire smaller nitrogen player Terra Industries (NYSE:TRA). It wasn't long, however, before CF Industries was watching its own back. (For more, read Finding Solid Buy-And-Hold Stocks.)

And Then There Were Three
A few months thereafter, Canadian fertilizer giant Agrium (NYSE:AGU) announced a cash-and-stock deal to acquire CF Industries. However, Agrium's deal was contingent on CF Industries not acquiring Terra. Thus, began the saga of the fertilizer wars of 2009. Since Agrium first made its offer for CF Industries earlier this year, the company has increased its offer three times so that it now represents a near-100% premium to CF Industries' share price at the time the deal was announced. Agrium's latest offer for CF Industries is valued at approximately $104 per share in cash and stock. Under the offer, shareholders of CF Industries would receive $45 in cash, as well as one common share of Agrium for each share of CF Industries.

CF Industries continues to support its bid for Terra and feels Agrium's offer still undervalues the company. CF Industries may have a point, as shares fetched over $150 in August 2008. Because the long-term fundamentals of the fertilizer industry remain very strong, it may not be long before CF Industries' stock price revisits that number again. (For related reading, check out The Value Investor's Handbook.)

To Be Continued
Agrium is committed to acquiring CF Industries and is now pushing for board seats. CF Industries has just won three seats on Terra Industries' board, which strengthens its bid for Terra. How this triangle will play out is anyone's guess, but it is likely that the best is yet to come in 2010. Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis article, risk free!

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