Agrium Indisutries, Inc. (NYSE: AGU - News) is growing through acquisition and organic expansion. The acquisition of United Agri-Products is driving revenues and profits supported by an expanded product line in the major business segment.
However, the company is affected by the global credit crunch, resulting in postponement of fertilizer purchases by the farmers. Moreover, lower international demand as well as reduced crop and energy prices have added to the market uncertainty and resulted in a significant decline in phosphate and nitrogen prices. These factors lead to many North American farmers deferring much of their fall 2008 crop nutrient applications to 2009.
Nevertheless, Agrium expects the situation to improve in the near future. The company also has a significant free cash flow. Therefore, we rate the shares a Buy with a target of $43.00.
Wednesday, March 18, 2009
Monday, March 9, 2009
CF Industries rejects Agrium bid, revises Terra offer
CF revises bid for Terra, rejects Agrium offer
* CF closed up 1.6 pct, while Terra closed down 3.6 pct
* Agrium shares close up 3.7 percent (Changes dateline, adds Agrium comment, background, byline)
By Euan Rocha and Scott Anderson
NEW YORK/TORONTO, March 9 (Reuters) - U.S. fertilizer maker CF Industries Holdings Inc's (CF.N) board rejected an unsolicited $3.6 billion bid from Agrium Inc as inadequate on Monday, and revised its offer for Terra Industries Inc (TRA.N).
Agrium (AGU.TO)(AGU.N), a rival, Canadian-based fertilizer producer, launched an unsolicited offer last month to buy CF for cash and stock to expand its presence in the nitrogen and phosphate fertilizer markets.
The bid was conditional on CF dropping its hostile offer for Terra, a U.S.-based fertilizer producer that has rejected CF's approach.
CF said Monday Agrium's proposal is a transparent attempt to interfere with its bid for Terra.
Agrium said it remains committed to acquiring CF and plans to commence an exchange offer shortly to acquire all outstanding CF stock.
"We are deeply disappointed that CF's board of directors has rejected Agrium's proposal without even attempting to engage us in exploratory discussions," said Agrium President and Chief Executive Mike Wilson in a statement.
TERRA BID
CF also altered its proposed offer for Terra. As long as CF's shares trade above Friday's closing price of $60.59, Terra shareholders would get at least $27.50 a share, or more.
Illinois-based CF earlier offered 0.4235 of its own shares for every share of Terra. It altered its exchange ratio to not less than 0.4129 of a CF share and not more than 0.4539 of a share.
As long as CF's shares trade between $60.59 and $66.60, Terra's shareholders will get $27.50 a share. However, Terra shareholders could get more than or less than that amount if CF shares move above, or below, that trading range, according to an investor presentation.
CF's initial offer in January valued Terra at $20 a share.
CF shares closed up 1.6 percent at $61.56, while Terra closed down 3.6 percent at $25.17, both on the New York Stock Exchange. Agrium ended up 3.7 percent at $32.58 on the NYSE.
CF is ready to issue up to 19.9 percent of its common shares required to do the deal with Terra, while the rest would be in preferred shares that would convert to common shares after the deal is done.
With its proposal, CF would circumvent a NYSE rule that requires shareholders of any NYSE-listed company to vote on the issuance of additional common stock if the issue increases outstanding shares by 20 percent or more.
"They are getting around going to CF shareholders. That way they can shrug off the Agrium offer," said Richard Kelertas, an analyst at Dundee Securities, in Montreal.
"It is now in the hands of Terra shareholders which I think will still reject it because they don't particularly want CF, and I believe once CF shareholders see this, they will be up in arms with their board." (Reporting by Euan Rocha and Scott Anderson; Editing by Frank McGurty and Jeffrey Benkoe)
* CF closed up 1.6 pct, while Terra closed down 3.6 pct
* Agrium shares close up 3.7 percent (Changes dateline, adds Agrium comment, background, byline)
By Euan Rocha and Scott Anderson
NEW YORK/TORONTO, March 9 (Reuters) - U.S. fertilizer maker CF Industries Holdings Inc's (CF.N) board rejected an unsolicited $3.6 billion bid from Agrium Inc as inadequate on Monday, and revised its offer for Terra Industries Inc (TRA.N).
Agrium (AGU.TO)(AGU.N), a rival, Canadian-based fertilizer producer, launched an unsolicited offer last month to buy CF for cash and stock to expand its presence in the nitrogen and phosphate fertilizer markets.
The bid was conditional on CF dropping its hostile offer for Terra, a U.S.-based fertilizer producer that has rejected CF's approach.
CF said Monday Agrium's proposal is a transparent attempt to interfere with its bid for Terra.
Agrium said it remains committed to acquiring CF and plans to commence an exchange offer shortly to acquire all outstanding CF stock.
"We are deeply disappointed that CF's board of directors has rejected Agrium's proposal without even attempting to engage us in exploratory discussions," said Agrium President and Chief Executive Mike Wilson in a statement.
TERRA BID
CF also altered its proposed offer for Terra. As long as CF's shares trade above Friday's closing price of $60.59, Terra shareholders would get at least $27.50 a share, or more.
Illinois-based CF earlier offered 0.4235 of its own shares for every share of Terra. It altered its exchange ratio to not less than 0.4129 of a CF share and not more than 0.4539 of a share.
As long as CF's shares trade between $60.59 and $66.60, Terra's shareholders will get $27.50 a share. However, Terra shareholders could get more than or less than that amount if CF shares move above, or below, that trading range, according to an investor presentation.
CF's initial offer in January valued Terra at $20 a share.
CF shares closed up 1.6 percent at $61.56, while Terra closed down 3.6 percent at $25.17, both on the New York Stock Exchange. Agrium ended up 3.7 percent at $32.58 on the NYSE.
CF is ready to issue up to 19.9 percent of its common shares required to do the deal with Terra, while the rest would be in preferred shares that would convert to common shares after the deal is done.
With its proposal, CF would circumvent a NYSE rule that requires shareholders of any NYSE-listed company to vote on the issuance of additional common stock if the issue increases outstanding shares by 20 percent or more.
"They are getting around going to CF shareholders. That way they can shrug off the Agrium offer," said Richard Kelertas, an analyst at Dundee Securities, in Montreal.
"It is now in the hands of Terra shareholders which I think will still reject it because they don't particularly want CF, and I believe once CF shareholders see this, they will be up in arms with their board." (Reporting by Euan Rocha and Scott Anderson; Editing by Frank McGurty and Jeffrey Benkoe)
Taking Prudent Approach: Exiting Potash
Investing is never easy. Even if we apply thorough, well-reasoned analysis, the possibility exists that the markets will invalidate our thesis and move against us. Knowing this, we are pleased when our approach delivers a trade that acts as expected and yields substantial rewards. An example is the short of Potash (POT) first recommended in my weekly newsletter
As I detailed in an article on Seeking Alpha last week, the initial trade occurred when POT was trading close to a long-standing resistance level, thus offering limited risk but immense upside potential.
A principle I have often discussed is that when an important technical price point falls, dramatic movement occurs. This belief allowed us to exit First Solar (FSLR) prior to a large sell-off and will enable us to determine a price target for POT.
With POT moving below the 50-day moving average, prices have cascaded lower. As there is no discernible support, we can expect the shares to retest their lows ($49.60) in the coming weeks. Having already seen a 28% return on this position, the ultimate collapse would yield substantial gains. If we were investing in a vacuum, the clear decision would be to allow POT to continue sinking and squeeze every dime of gains from this position.
However, we do not exist in a vacuum. I have often stated that we are in a range-bound traders' market where quickly realizing gains will allow us to accumulate outsized returns. With the market oversold and in need of a rally, I will not allow hard-fought gains to be surrendered as we attempt to squeeze every penny from this trade. Instead, I recommend a prudent approach that will allow us to benefit from a further drop in POT while also moving money off the table. To satisfy this dual mandate, I recommend closing 50% of the short POT position as this week's technical trade
..Sean Hannon in seeking alpha
As I detailed in an article on Seeking Alpha last week, the initial trade occurred when POT was trading close to a long-standing resistance level, thus offering limited risk but immense upside potential.
A principle I have often discussed is that when an important technical price point falls, dramatic movement occurs. This belief allowed us to exit First Solar (FSLR) prior to a large sell-off and will enable us to determine a price target for POT.
With POT moving below the 50-day moving average, prices have cascaded lower. As there is no discernible support, we can expect the shares to retest their lows ($49.60) in the coming weeks. Having already seen a 28% return on this position, the ultimate collapse would yield substantial gains. If we were investing in a vacuum, the clear decision would be to allow POT to continue sinking and squeeze every dime of gains from this position.
However, we do not exist in a vacuum. I have often stated that we are in a range-bound traders' market where quickly realizing gains will allow us to accumulate outsized returns. With the market oversold and in need of a rally, I will not allow hard-fought gains to be surrendered as we attempt to squeeze every penny from this trade. Instead, I recommend a prudent approach that will allow us to benefit from a further drop in POT while also moving money off the table. To satisfy this dual mandate, I recommend closing 50% of the short POT position as this week's technical trade
..Sean Hannon in seeking alpha
Intrepid Potash: Pressure From All Sides
Shares of Intrepid Potash Inc. (IPI) have dropped sharply this week as pressures have mounted in various forms. For starters, the Dow has dropped 8.1% in just the last 5 trading days. It’s tough for any growth stock to avoid losses in that environment. At the same time, the company announced earnings this week. Numbers for the fourth quarter weren’t particularly bad, but there was little reassurance that management could give investors for the coming months. Finally, the potash industry took another blow when Russian miner Uralkali officially cut prices of potash to Brazil by 25%.
Looking closely at the earnings report, it was a bit refreshing to see management acknowledging the tough environment and taking steps to protect shareholders. While earnings were quite high compared to last year’s numbers, the picture for Q1 2009 and following remains cloudy. IPI was able to report sharp profit gains while selling only 94,000 short tons of potash compared to the 215,000 tons it sold in the fourth quarter of 2007. The difference is the realized price of $762 per short ton in 2008 compared to $224 realized in 2007.
In order to maintain financial health in a market with waning demand the company has several options on its plate:
Mine Shutdowns - Closing locations would result in decreased potash production, but would allow the company to save on costs. The resources would be preserved for a later date when presumably prices are more attractive.
Deferrals of Capital Expenditures - Intrepid has many projects that are expensive to maintain, but result in discovery or new production of product. Reducing the capital for these projects would again decrease production but save costs until the market turns
Reduce Operation Levels - Short of actually closing mines, the company could simply “tone down” its level of production and spend less on labor, maintenance, and supplies.
Management made no attempts to assure investors of better days ahead but instead categorized the current market as “erratic and unpredictable.” Much of the production that had been sold to oil and natural gas markets is now being converted for agricultural use. IPI is being forced to adapt to a new environment and appears willing and able to make such transitions.
In 2009, the company intends to spend anywhere from $100 million to $140 million on capex projects. The range is quite wide because the spending depends on exactly how the year progresses. $45 to $65 million of this will be earmarked for sustainability and improvement projects while the remaining $55 to $75 million will be for investments in opportunistic projects. Since the company is sitting on cash of $116.6 million (as of 12/31), no debt, and has access to a $125 million line of credit, the budget should be adequately funded.
With consensus earnings expectations of $2.54 per share in 2009, and $2.84 in 2010, the shares appear to be a good value near $15. The ZachStocks Growth Model has a position in IPI and while obviously I wish we had waited until today to make that investment, the long-term potential for this stock remains attractive. I remain optimistic that this position will realize gains over the coming 6 to 12 months...seeking alpha
Looking closely at the earnings report, it was a bit refreshing to see management acknowledging the tough environment and taking steps to protect shareholders. While earnings were quite high compared to last year’s numbers, the picture for Q1 2009 and following remains cloudy. IPI was able to report sharp profit gains while selling only 94,000 short tons of potash compared to the 215,000 tons it sold in the fourth quarter of 2007. The difference is the realized price of $762 per short ton in 2008 compared to $224 realized in 2007.
In order to maintain financial health in a market with waning demand the company has several options on its plate:
Mine Shutdowns - Closing locations would result in decreased potash production, but would allow the company to save on costs. The resources would be preserved for a later date when presumably prices are more attractive.
Deferrals of Capital Expenditures - Intrepid has many projects that are expensive to maintain, but result in discovery or new production of product. Reducing the capital for these projects would again decrease production but save costs until the market turns
Reduce Operation Levels - Short of actually closing mines, the company could simply “tone down” its level of production and spend less on labor, maintenance, and supplies.
Management made no attempts to assure investors of better days ahead but instead categorized the current market as “erratic and unpredictable.” Much of the production that had been sold to oil and natural gas markets is now being converted for agricultural use. IPI is being forced to adapt to a new environment and appears willing and able to make such transitions.
In 2009, the company intends to spend anywhere from $100 million to $140 million on capex projects. The range is quite wide because the spending depends on exactly how the year progresses. $45 to $65 million of this will be earmarked for sustainability and improvement projects while the remaining $55 to $75 million will be for investments in opportunistic projects. Since the company is sitting on cash of $116.6 million (as of 12/31), no debt, and has access to a $125 million line of credit, the budget should be adequately funded.
With consensus earnings expectations of $2.54 per share in 2009, and $2.84 in 2010, the shares appear to be a good value near $15. The ZachStocks Growth Model has a position in IPI and while obviously I wish we had waited until today to make that investment, the long-term potential for this stock remains attractive. I remain optimistic that this position will realize gains over the coming 6 to 12 months...seeking alpha
Tuesday, March 3, 2009
Ag Stocks Offer Long-Term Value
The recent credit crisis has dampened short-term loans made by banks to farmers for fertilizer, seed and various chemicals, all of which are desperately needed to improve the health and duration of their crops
Nevertheless, agricultural companies should not be shunned here. They offer a unique long-term opportunity for those investors who believe in the global growth story.
Despite a global recession, people around the world need to eat. As the demographic trend shifts from starch-based diets to protein-based diets, agricultural companies that are positively positioned to capture this trend will likely move higher.
Additionally, the proposal of several strategic acquisitions within the agricultural sector supports the long-term value thesis within the agricultural sector as a whole.
Nevertheless, agricultural companies should not be shunned here. They offer a unique long-term opportunity for those investors who believe in the global growth story.
Despite a global recession, people around the world need to eat. As the demographic trend shifts from starch-based diets to protein-based diets, agricultural companies that are positively positioned to capture this trend will likely move higher.
Additionally, the proposal of several strategic acquisitions within the agricultural sector supports the long-term value thesis within the agricultural sector as a whole.
Will Terra Industries Reverse Its Position on CF Industries?
Agrium (AGR) has announced a $72.00 per share offer for CF Industries (CF), valuing the company at $3.6b.
This action by AGR is very clearly an attempt to prevent the possible Terra Industries (TRA) - CF combination which would threaten AGR's top position in most major fertilizer segments. From that standpoint, AGR's offer make perfectly good sense as any situation that disrupts TRA/CF would benefit AGR in the long run.
As of this entry, CF has not responded to the unsolicited offer. Suffice it to say that a CF-AGR combination poses some troubling antitrust issues, as these are currently the top two players in multiple fertilizer product niches. Any formal agreement between these companies would very likely require divestitures in order to maintain competition for various fertilizer products.
That being said, this is somewhat reminiscent of last year's AW-RSG transaction where Waste Management (WMI) attempted, and failed, to prevent the merger of its two closest competitors. Naturally, that situation involved a friendly, formal agreement between AW and RSG which is absent in this situation. However, Agrium's offer for CF should at least now compel TRA to seriously consider the consequences of continuing to reject the CF offer. If AGR and CF do eventually combine, TRA would be permanently relegated to a distant second-tier position within the fertilizer industry. This fact alone may be the catalyst to reversing TRA's current position with respect to CF.
This action by AGR is very clearly an attempt to prevent the possible Terra Industries (TRA) - CF combination which would threaten AGR's top position in most major fertilizer segments. From that standpoint, AGR's offer make perfectly good sense as any situation that disrupts TRA/CF would benefit AGR in the long run.
As of this entry, CF has not responded to the unsolicited offer. Suffice it to say that a CF-AGR combination poses some troubling antitrust issues, as these are currently the top two players in multiple fertilizer product niches. Any formal agreement between these companies would very likely require divestitures in order to maintain competition for various fertilizer products.
That being said, this is somewhat reminiscent of last year's AW-RSG transaction where Waste Management (WMI) attempted, and failed, to prevent the merger of its two closest competitors. Naturally, that situation involved a friendly, formal agreement between AW and RSG which is absent in this situation. However, Agrium's offer for CF should at least now compel TRA to seriously consider the consequences of continuing to reject the CF offer. If AGR and CF do eventually combine, TRA would be permanently relegated to a distant second-tier position within the fertilizer industry. This fact alone may be the catalyst to reversing TRA's current position with respect to CF.
Wednesday, February 25, 2009
Agrium Bid: Bottom for Fertilizers?
Agrium Inc. (NYSE: AGU - News) today made a hostile $3.6 billion bid for CF Industries (NYSE: CF - News). The bid is for $72/share, which is a 30% premium to the previous day's closing price. It is one share of Agrium plus $31.70 in cash. Committed financing is in place from Canadian banks.
Agrium has been acquisitive, and recently completed the acquisition of UAP Holdings, a fertilizer distributor. This deal would triple Agrium's capacity to make phosphates and nitrogen-based fertilizers. There would be $150 million in synergies, and the deal is conditional on CF Industries dropping its bid for Terra Nitrogen Company (NYSE: TNH - News).
The deal would be accretive in 2010. Prices have fallen for fertilizers, along with other commodities. However, there has been some slight improvement in recent weeks, implying the market has hit a bottom.
Agrium has been acquisitive, and recently completed the acquisition of UAP Holdings, a fertilizer distributor. This deal would triple Agrium's capacity to make phosphates and nitrogen-based fertilizers. There would be $150 million in synergies, and the deal is conditional on CF Industries dropping its bid for Terra Nitrogen Company (NYSE: TNH - News).
The deal would be accretive in 2010. Prices have fallen for fertilizers, along with other commodities. However, there has been some slight improvement in recent weeks, implying the market has hit a bottom.
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