Fertilizer Firms One Step Closer to the Altar

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Earlier this month, we saw a big development in the ongoing takeover saga that DealBook has dubbed the "Forever War." CF Industries (NYSE: CF), which finds itself in the sights of Agrium (NYSE: AGU), sweetened its bid for Terra Industries (NYSE: TRA) by including a significant cash component. I deemed this to be a realistic bid, and then Terra's Board made me look out of touch by rejecting it two days later.

Well, shareholders have now voted in favor of three CF nominees at Terra's annual meeting. Who's out of touch now?

This voting follows a final volley of shareholder letters and press releases that pelted my inbox over the past week or two. Terra trumped up the three proxy advisory firms backing its own slate of Director nominees, while trashing a fourth. The firm accused the supposedly "flawed and contradictory" report by RiskMetrics Group of employing "tortured arguments, flawed analysis and contradictory reasoning." Harsh!

Interestingly enough, RiskMetrics has also recommended that CF shareholder tender to Agrium's bid. Bankers and lawyers must love this firm!

Meanwhile, CF mostly just rehashed some familiar points in favor of the combination of the two firms:

• A compelling premium with a cash component offering "certainty of value"
• No financing condition or shareholder approval required
• Strong strategic rationale, given enhanced scale and financial clout

Terra shareholders are a pragmatic bunch. By this point, it's become quite clear that CF isn't backing down. Voting some CF nominees onto Terra's Board is a prelude to negotiations. It doesn't seal the current offer in place, but rather opens the door to a final bid somewhere down the road. I view this as the most likely outcome. Agrium came close to winning this three-way tug-of-war, with 62% of CF shareholders tendering to its offer this week, but the Terra results really throw a wrench in that firm's plans.