Back in January, a nitrogen bomb hit Wall Street when CF Industries
At the time, I likened the move to the glory days of mergers and acquisitions (M&A) in other extractive industries, which saw the formation of megacap companies like ExxonMobil
Well that piece has now fallen into place, with Agrium
The Agrium offer presents an interesting alternative for CF shareholders. The Albertan fertilizer company is promising 50% greater annual cost synergies. While such claims can be flimsy at times, this one carries some real weight, since past acquisitions, such as Royster-Clark back in 2006, have subsequently exceeded Agrium's cost savings expectations. The company appears to know how to pull off successful integrations.
Perhaps more decisive is the fact that Agrium is offering a 44%/56% combination of cash and shares in its bid, which valued CF at $72 at the time of the announcement. Cash consideration definitely helped to sway Grey Wolf into accepting Precision Drilling Trust's
Whereas that land driller combo has subsequently encountered liquidity concerns, Agrium notes that its capital structure would be no worse off following a tie-up. Still, from CF's perspective, the Terra tie-up may be preferable, since the all-stock transaction would appear to leave that pair with about $1 billion of net cash on the balance sheet.
Whether a merger with Agrium is worth leveraging up the balance sheet is a tough call, but I wouldn't be surprised to see CF use this concern as an "out" if it's unshakably committed to its bid for Terra.
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