OSLO, Norway (Reuters) – Norway’s Yara has agreed to buy Terra Industries for $4.1 billion US to create the world’s biggest mineral fertilizer producer, as rivals look to join forces to gain size and reach.
Norway’s biggest-ever foreign takeover announcement came a month after U.S. CF Industries Holdings withdrew its year-long hostile bid for Terra.
CF Industries is itself subject to a hostile offer from Canadian fertilizer maker Agrium, which said it is still committed to its bid.
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These and other battles have kept the fertilizer sector in investors’ sights, despite a sharp fall in prices last year as the global economic crisis hit.
Analysts and producers expect a rebound in demand this year as farmers replenish their soil nutrient levels.
“We expect the U.S. markets to pick up in a big way,” Yara chief executive officer Joergen Ole Haslestad said, adding that the all-cash Terra purchase “will create a clear global No. 1 in the fertilizer industry.”
Energy-intensive fertilizer producers in North America have become attractive, Yara said, due to “structural changes” in U.S. energy markets as a boom in unconventional gas output curbs U.S. natural gas prices.
Yara said production costs for urea, the main component of nitrogen-based fertilizer, inherited from the Terra deal would be half the $1,500 per tonne it would cost to build new capacity, such as in the Middle East, where energy costs are low.
The deal also allows it to tap Terra’s logistics in the United States. Terra has a strong presence in the Midwest, while Yara’s U.S. operations are mainly based on the East coast.
The enlarged company will be No. 1 in production volumes of ammonia and UAN (a mix of ammonia and urea), although some potash-based fertilizer producers have larger market capitalizations.
Analysts say that consolidation across the nitrogen-based fertilizer industry would continue as leading players seek to benefit from bigger scale and wider geographical reach.
“There are still many players in the fertilizer industry and a company like Yara seeks to reduce that number by increasing their own stake and earnings,” First Securities analyst Hans Erik Jacobsen said.
Yara’s offer values Terra at $41.10 per share and represents a premium of 23.6 percent compared with the closing price on Feb. 12.
When CF pulled its cash-and-shares bid for Terra in January, the offer was valued at $38.89 per Terra share.
Yara said it plans a rights issue worth between $2 billion and $2.5 billion to help fund the deal. The Norwegian government, which owns 36.2 percent of Yara, would participate.
