CF Industries (NYSE:CF) dropped this bomb late Thursday: It's making an all-stock offer for Terra Industries (NYSE:TRA).

This is the biggest piece of merger-and-acquisition activity we've seen in the fertilizer space in quite some time. Mosaic (NYSE:MOS) shook things up earlier this year with the $1.6 billion sale of its Saskferco unit to Yara International, the Nokia (NYSE:NOK) of nitrogen. CF's preliminary offer, however, values Terra at more than $2 billion.

As with Mosaic's Saskferco sale, this potential pairing is also a nitrogen play. The combined CF and Terra would be the world's top dog in nitrogen fertilizer, at least in terms of publicly traded companies. Combined production capacity would hit 6.3 million tons of nitrogen, plus 2.1 million tons of phosphate.

I suppose it was only a matter of time. Oil and gas majors like ExxonMobil (NYSE:XOM) had their megamergers at the end of the millennium. Metal miners like BHP Billiton (NYSE:BHP) followed. Fertilizer is yet another extractive industry in which a global footprint has its allure.

CF Industries has perfectly positioned itself as a consolidator in the sector. The company built up such a significant war chest over the past few years that, like PotashCorp (NYSE:POT), it was able to rapidly repurchase oodles of shares in the fall, and is still virtually debt free.

The fact that CF turned first to its own shares when they were cheap indicates to me that this company is serious when it talks about "commitment to careful stewardship of our shareholders' capital." I'm inclined to give these folks the benefit of the doubt when it comes to the question of creating value for CF owners. The real challenge now is to convince the Terra shareholders.

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Fool contributor Toby Shute doesn't have a position in any company mentioned. The Motley Fool has a disclosure policy.