A Match Made in Nitrogen

After more than a year of endless takeover approaches and demurrals among several fertilizer players, two have finally cut a mutually satisfactory deal. On Monday, Yara International agreed to buy Terra Industries (NYSE:TRA) for $4.1 billion in cash.

One unnamed analyst was cited in the Canadian press as saying that Norway's Yara "is not bottom-ticking the market here, in terms of price." Indeed, this offer is a long way from CF Industries' (NYSE:CF) all-stock offer for Terra back in January 2009, which valued the firm at a bit over $2 billion. When you consider that Terra has paid out a $750 million special dividend in the interim, it really becomes clear what a crazy lowball of an offer that initial bid was.

This isn't even the first major piece of M&A we've seen in the fertilizer market this year. Vale (NYSE:VALE) paid nearly as much as Yara is preparing to lay out when it picked up Bunge's Brazilian fertilizer assets last month. BHP Billiton (NYSE:BHP) also signed a smaller deal to snap up Saskatchewan neighbor Athabasca Potash. Things are really starting to heat up.

All eyes now turn to Agrium (NYSE:AGU), which has been patiently pursuing CF Industries since last February. Can they? Will they? Should they? This Fool's afraid they'll overpay.

I would be quite surprised if Agrium didn't seal the deal over the next six months or so. All of the company's public comments, including those surrounding the Yara deal, point to dogged pursuit.

The logic of these combinations is pretty compelling, and familiar to anyone who remembers the oil and base metal megamergers that gave us companies like ConocoPhillips and Teck Resources. As I said when the nitrogen bomb first hit Wall Street, "fertilizer is yet another extractive industry in which a global footprint has its allure."

Compared to a Vale takeover of Mosaic (NYSE:MOS) or a BHP buyout of PotashCorp (NYSE:POT), an Agrium-CF pairing wouldn't exactly be earth-shattering, but it would certainly keep speculators hungry for a true fertilizer megamerger. With these hopes alive, it's probably too much to expect a meaningful sell-off in the leading potash players' shares anytime soon.