Fertilizer Wars Come To An End

By Sham Gad | March 11, 2010 AAA

For over a year, the fertilizer industry has been consumed by a three way war between Agrium (NYSE:AGU), CF Industries (NYSE:CF) and Terra Industries (NYSE:TRA). That love hate triangle has finally come to rest.

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More Money, More Money
It all began with CF making an offer to buy out rival nitrogen producer Terra Industries. Shortly thereafter, Canada's Agrium came in with an offer for CF contingent upon CF dropping its pursuit for Terra. For nearly a year, that never happened. Instead, each target company did what you would expect them to do: publicize that the offer was too low. Thus followed months of increased bids, hostile attempts to woo shareholders from the other side, and insistence on board seats. It was your typical merger & acquisitions 101 drama.

In the End, Much Ado About Nothing
Earlier this year, CF dropped its bid for Terra as the two sides could not agree to terms. It appeared that this had opened the door for Agrium to potentially find a way to acquire CF despite the fact that CF still found Agrium's offer too low. Several weeks later, Norwegian fertilizer group Yara offered to buy Terra for approximately $41 a share. Shortly thereafter, CF came in with a superior bid of approximately $4.7 billion or $47 a share in cash and stock. Terra agreed to the offer after Yara refused to increase its bid. At the same time, Agrium announced that it was dropping its efforts to take over CF Industries. So in the end, all ended the way it started. (For more, see The Wonderful World Of Mergers.)

The Silver Lining
The silver lining for investors is that all the merger mania suggests that the fertilizer industry is due for a nice rebound. After a couple of years of declining grain prices, farmers seem to be reacting to the need to replenish depleting soil. While owning the shares outright might offer greater exposure, investors can also participate by owning the only other thing farmers need more than soil: seeds. And no one dominates that business more than Monsanto (NYSE:MON). With farmers coming back after years of working down existing inventory, agriculture has some sunny days ahead. (For more, see The Merger - What To Do When Companies Converge.)

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