American fertilizer company CF Industries is poised to take full ownership of Canadian Fertilizers Ltd., Canada’s largest nitrogen fertilizer plant.
CF Industries already owns 66 percent of the plant, located in Medicine Hat, Alta.
The company recently said it had reached an agreement with Glencore International to buy the remaining 34 percent, now held by Viterra.
Pending regulatory approval, CF Industries will pay roughly $915 million for Viterra’s share of the facility.
The plant can produce more than one million tonnes of ammonia per year and more than 800,000 tonnes of granular urea.
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“This acquisition is a low-risk expansion of our nitrogen supply capability,” said Stephen Wilson, chair and chief executive officer of CF Industries Holdings, Inc.
“It will add … to our nitrogen production capacity in a region with low natural gas costs.”
CF Industries’ move to acquire full ownership of the Medicine Hat plant is tied to Glencore’s proposed $6.1 billion takeover of Viterra, Canada’s largest grain handling company.
When Glencore announced its intention to buy Viterra, it also said it would sell off a significant portion of Viterra’s assets to two Canadian companies: Agrium and Richardson International.
Under its deal with Glencore, Agrium was expected to acquire 232 Viterra farm retail outlets in Canada, as well as Viterra’s 34 percent stake in the Medicine Hat nitrogen plant and a handful of farm retail outlets in Australia for $1.15 billion and the value of working capital.
Under the revised deal, Agrium will no longer seek an ownership stake in Canadian Fertilizers Ltd., but will still be in line to acquire Viterra’s farm retail outlets.
The value of that deal is estimated at $175 million as well as $400 million in retail working capital.
Agrium officials said the new arrangement makes the acquisition of Viterra’s retail operations more attractive and represents an excellent addition to Agrium’s retail portfolio.
The Agrium–Glencore deal would still be subject to regulatory approval in Canada.
Analysts and Canadian farm groups have suggested that allowing Agrium to acquire Viterra’s farm retail network as well as its share in the Medicine Hat nitrogen plant could hurt competition in the western Canadian farm input sector.
Richard Downey, Agrium’s vice-president of investor and corporate relations, said the deal allowing CF Industries to take outright ownership of the Medicine Hat plant might address some concerns over competition, but that was not the main reason for Agrium’s decision.
CF already had a majority ownership stake in the facility and was interested in taking full control, he added.
“It kind of made sense and they came in with what was a pretty reasonable price,” Downey said.
“What we said was that it de-risked the … (Glencore-Agrium deal) a bit, but I wouldn’t say that was the primary (driver).”
Earlier this year, an independent report by Informa Economics suggested that allowing Agrium to expand its position in the farm retail and wholesale nitrogen fertilizer sectors could enable the company to “exert upward pressure” on nitrogen prices, particularly in regional markets where there are no retail competitors.
The Informa report, commissioned by the Saskatchewan government, said there is no indication that Agrium will use its market power to do that, only that the possibility exists.
Agrium officials say there are competing fertilizer retailers in most regions of the Prairies.
Wholesale competition from other manufacturers and importers would also help keep nitrogen prices in check.
Agrium is already the largest producer of nitrogen fertilizer in Canada, controlling 45 percent of manufacturing capacity.
As well, the company owns 80 retail fertilizer locations in Canada, including 39 in Alberta, 31 in Saskatchewan and four in Manitoba.
Agrium also announced it will begin a process in early September to repurchase $900 million worth of the company’s outstanding common shares.
“The sale of the Medicine Hat nitrogen facility has provided us with an excellent opportunity to return excess capital to our shareholders,” Agrium president Mike Wilson said in a news release.
Pending regulatory approval, Agrium’s acquisition of Viterra’s retail business is expected to occur within the next six months, he added.
CF Industries, based in Dearborn, Illinois, makes nitrogen fertilizer at seven North American plants, including two in Canada.
