Yara International (Oslo) and CF Industries (Deerfield, IL), the world’s largest and second-largest manufacturers of nitrogen fertilizers, respectively, said today that they are in early talks regarding a potential merger of equals. “There is no guarantee of a transaction,” the companies add. Yara is the world’s largest manufacturer of ammonia, nitrate, and complex fertilizers, with production of 7.36 million m.t. of ammonia and 18.7 million m.t. of finished fertilizers in 2013. It reports sales of 85.1 billion Norwegian kroner ($13.4 billion) and Ebitda of NK13.3 billion last year. The company is the leading fertilizer producer in Europe, particularly of nitrogen. Sales of ammonia reached 2.20 million m.t., fertilizers 23.7 million m.t., and industrial products 4.93 million m.t. last year. Yara commands about 20% of the global ammonia trade. It aims to increase its own and joint venture sales volumes by 40%, or 8 million m.t., from 2010 to 2016, by organic growth alone.
Yara’s biggest shareholder is the Norwegian government, with a 36.21% stake. The second-biggest is the state-controlled Government Pension Fund Norway, with 4.72%. The government interest in Yara could be a major obstacle to the deal. The government said in June that it would not cut its stake in Yara below 34% and that any change in that policy would probably require the Norwegian parliament’s approval. That could be difficult to obtain, according to Norwegian observers. Yara was demerged from Norsk Hydro in 2004.
CF Industries operates nitrogen fertilizer complexes in the central United States and Canada and distributes plant nutrients through a system of terminals, warehouses, and associated equipment located primarily in the midwestern United States. It also owns a 50% share in GrowHow UK, a fertilizer jv with Yara in the United Kingdom; an ammonia facility in Trinidad; and Keytrade (Zurich), a global fertilizer trading organization. CF outbid Yara to acquire a smaller competitor, Terra Nitrogen, for $4.71 billion in 2010.
CF Industries reportsd sales of $5.5 billion and Ebitda of $2.7 billion in 2013. It sold 14.8 million m.t. of fertilizers, of which nitrogen accounted for 12.9 million m.t., worth $4.7 billion, and phosphates 1.9 million m.t., worth $796 million. In March this year, the company completed the sale of its phosphate mining and manufacturing business to Mosaic for $1.4 billion, making CF a pure-play nitrogen company. It is currently in the middle of a $3.8-billion investment program to add nitrogen capacity at Donaldsonville, LA; and Port Neal, IA, which will be completed in 2015–16, adding 25% to its nitrogen capacity. The company’s competitive position is underpinned by a large network of production, logistics, and distribution facilities in North America and access to low-cost natural gas.
Yara’s and CF Industries’ pro forma combined sales, excluding CF Industries’ phosphate sales, were $18.1 billion in 2013, which would make the group the world’s top fertilizer manufacturer. The potential combination would give the group a balanced geographical spread in both Europe and North America, as well as giving Yara access to low-cost US natural gas. Yara is already moving independently to secure that access. It announced in May that it was planning to build a jv ammonia plant with BASF at BASF’s site at Freeport, TX. The unit would have a capacity of 750,000 m.t./year. The project is subject to final approval from the respective boards of directors of Yara and BASF.
Bernstein analyst Jeremy Redenius says that the two companies are complementary geographically. “CF Industries is a North American, mainly US, producer, while Yara has no capacity in the US, only Canada, and is more regionally diverse, which should limit any antitrust issues.” He notes that CF Industries would benefit from Yara’s growing geographical footprint and product portfolio, especially if the United States becomes a net exporter of urea on the back of low-cost gas.
“An incremental benefit would be tax inversion. Yara paid 20.8% taxes in 2013, whereas CF Industries paid 31.1%. The corporate tax rate in Norway is 28% versus 35% in the US,” Redenius says. However, the US Treasury Department announced last night measures that will make it harder for US companies to redomicile out of the United States in order to reduce their corporate tax liabilities. The move against tax inversions, which has already hurt the share prices of several actual and presumed European bid targets, applies to deals that did not closed by last night.
By Natasha Alperowicz
