June 21, 2009 / 9:04 PM / in 9 years

ANALYSIS-Agrium's bid for CF likely to crumble

* Agrium’s June 22 deadline to CF shareholders looms

* Even majority shareholder support will not ensure a deal

By Euan Rocha

TORONTO, June 21 (Reuters) - Agrium Inc’s AGU.TO hostile bid for CF Industries (CF.N) has met with limited shareholder support so far, raising doubts about the deal and setting up a possible selloff in CF’s stock.

Agrium, a leading Canadian agricultural products and fertilizer company, launched the unsolicited bid for its smaller U.S. rival in February. It has twice sweetened its offer, but only 3 percent of CF’s shares have been tendered in favor of the deal, according to the most recent disclosure.

Agrium has set June 22 as a deadline and warned that it will walk away from the deal if a sizable majority of CF’s shares have not been tendered to its offer by that date.

“At present, it looks like it’s likely to end in a stalemate, barring some sort of last-minute turnaround,” said Morningstar analyst Ben Johnson, who sees CF’s shares taking a hit if the proposed deal falls apart.

CF’s shares have risen more than 50 percent year-to-date largely due to Agrium’s bid, while shares of sector rivals Potash Corp POT.TO, Mosaic Co (MOS.N) and Agrium have risen, on average, less than 30 percent, in the same period.

“In our view, it may be prudent for investors to take profits in CF in the event that Agrium walks away from the transaction,” BMO analyst Edwin Chee, said in a note to clients.

Agrium is offering CF shareholders $40.00 in cash plus one Agrium share for each CF share, but CF’s shares are trading at roughly 10 percent below the offer price — a spread this size usually indicates that investors doubt the deal will close.

On Friday on the New York Stock Exchange, CF stock was at $74.99 while Agrium closed at $41.39.

Earlier this week, Agrium appealed to CF shareholders to tender their shares to its offer, but the Calgary, Alberta-based firm cannot force a deal through unless CF’s management is willing to come to the table and negotiate.

CF has expressed no interest in negotiating with Agrium and has argued that Agrium’s bid undervalues the company and is merely an attempt to block CF’s own hostile bid for U.S.-based Terra Industries TRA.N.


Even if a majority of CF’s outstanding shares were tendered to Agrium’s offer, that would still not guarantee a deal.

RiskMetrics, a shareholder advisory firm, has recommended that CF shareholders tender shares toward the Agrium offer, but it noted that CF is a Delaware company, and as such is permitted to exercise a “just say no” defense.

“Regardless of the views of CF shareholders, CF will continue to have the ability to ‘just say no’ to Agrium, reject an otherwise attractive offer, and proceed with its pursuit of Terra,” noted Chris Young, of RiskMetrics.

Young also cautioned that Agrium should not interpret a high tender as shareholder support for its current offer.

“Most (CF) shareholders to whom we spoke believe that the tender offer is a referendum on engagement, not on the adequacy of the current offer,” said Young. “Agrium, for its part, will likely have to raise its offer to convince a majority of CF shareholders to agree to a transaction.”

However, Agrium remains adamant that it will not sweeten its bid again, unless CF’s board agrees to engage with them and demonstrates that the company is worth more.

“Our basic belief is that we are at a fair value for (CF) shareholders,” Agrium’s Chief Executive Mike Wilson told Reuters. “If (shareholders) are waiting for a raise in the bid, they are going to be waiting for a long time.”


If Agrium decides to walk away from the deal, CF’s shares could see a sharp correction.

“There are a lot of arbs (arbitrageurs) in CF’s stock and if it looks like something is not going to come to fruition, then I would expect that CF’s stock would sell off sharply,” said Greenwich Consultants analyst Michael Judd.

Fertilizer company shares plunged in the second half of 2008, as demand for crop nutrients collapsed amid the global downturn. Shares in the sector have posted sizable gains year-to-date on hopes of a rebound in demand, but CF’s shares, which are trading around $75, have easily outpaced the rest of the pack.

Morningstar’s Johnson believes that the outperformance of CF’s shares is primarily due to the Agrium bid — $65 is his current fair value estimate on CF’s stock.

Johnson, who recently met with Agrium’s CEO at the company’s analyst day in Baltimore, is convinced that this is the company’s final offer.

“Either he’s got one of the best poker faces in the business, or he’s being a 100 percent honest,” said Johnson.

$1=$1.135 Canadian Reporting by Euan Rocha; editing by Rob Wilson

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