Since going public in 2005, Deerfield-based CF Industries Holdings Inc. has become a leading supplier of nitrogen fertilizer in North America. On Tuesday, the company signaled its global ambitions. Or it signaled that it wants to thwart the possibility of a takeover.
Speculation about CF Industries’ future fluctuated wildly Tuesday after the company said in a statement that it was in merger talks with Norway’s Yara International ASA. CF Industries said the discussions are preliminary and that there were no assurances that the talks would culminate in a deal.
The announcement stoked a 5.3 percent increase in CF Industries’ stock price, indicating investors liked the idea of a deal with Yara. Shares of CF closed at $269.37 on the New York Stock Exchange.
The combination would be formidable, but the transaction would likely have consequences for Midwest farmers and Chicago’s status as a center for global trade.
The Chicago area’s chances of retaining CF Industries’ headquarters are dimmed by two big factors. The Norwegian government owns a 36 percent stake in Yara, and odds are the government would hate to lose the headquarters and the jobs that come with it.
Also, CF Industries may have its own reasons to let Norway keep the headquarters of the combined company. The deal may be structured as a corporate inversion, which would allow CF Industries to escape high U.S. taxes by moving its headquarters overseas.
Neither party would comment on the merger talks beyond the short statements they issued Tuesday.
The merger would create a global fertilizer giant. CF Industries would gain access to Yara’s sales distribution network in 150 countries. Yara would gain access to CF’s supply of cheap U.S. natural gas, which is used to make ammonia, a key ingredient in nitrogen-based fertilizers.
The global fertilizer industry is already highly concentrated, and more consolidation could drive fertilizer prices higher as firms gain greater market power.
“The more consolidated the industry, the higher margins producers can earn,” said Raymond Goldie, an analyst at Salman Partners in Toronto. “That should be positive for the producers but not necessarily so for farmers.”
CF Industries has been active in the industry’s consolidation. In 2010, the company outbid Yara to acquire rival Iowa-based Terra Industries Inc. for $4.7 billion. The deal helped CF Industries fight off a hostile takeover by Canadian fertilizer company Agrium.
CF Industries became more attractive to prospective acquirers when it sold its phosphate business earlier this year to focus on only nitrogen fertilizer, analysts said.
By engaging with Yara, CF Industries “could be being proactive to prevent themselves from being taken over,” Goldie said.
CF described the talks as a “potential merger of equals transaction.” Mergers of equals are considered the friendliest of friendly merger transactions.
In a merger of equals, issues related to governance and operations of the combined company — such as corporate name, headquarters location and the makeup of the board of directors — are usually the trickiest to resolve because neither side has the ultimate negotiating leverage.
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