Canadian fertilizer producer Agrium Inc offered to buy U.S. rival CF Industries for $3.6 billion in cash and stock on Wednesday, as it moves to gain a foothold in the global nitrogen market.

The bid, which is a 30 percent premium to CF's closing share price, is conditional on CF dropping its hostile offer for U.S.-based fertilizer producer Terra Industries , which Terra has rejected.

CF shares were up 14.4 percent at $63.60 on the New York Stock Exchange. Agrium shares were down 7.3 percent at C$46.75 on the Toronto Stock Exchange.

Agrium said it has submitted a proposal to CF's board of directors, offering $72 in cash and stock for each share. CF stakeholders would receive one Agrium common share and $31.70 in cash for each share.

With CF, more than anything, you are getting phosphate in the mix there. CF's got a great basket of phosphate assets. And I would argue that on a long-term basis, phosphate assets are going to be a lot more attractive and post higher returns than nitrogen assets, said Morningstar analyst Ben Johnson in Chicago.

I think that the prospective synergies between CF and Agrium are definitely more compelling than those between CF and Terra, he added.

The offer comes as key crop nutrients such as nitrogen, phosphorus and potassium, used by farmers to boost crop yields, are at extremely low prices.

Fertilizer prices soared in the first half of 2008 on peaking demand, tight inventories and record grain prices. But since then the global credit crunch and the widening recession have weighed on the agricultural sector.

Prices of nitrogen and phosphate fertilizers tumbled toward the end of 2008 as farmers stayed out of the market in hopes that prices would fall ahead of the spring planting season in North America. Brazilian farmers, hurt by tight credit markets, also cut spending on inputs.

Agrium said its offer is not subject to financing conditions. The company said it has sufficient cash resources and committed financing underwritten by Royal Bank of Canada and Bank of Nova Scotia to fund the cash portion of the proposal.

Agrium, which sees annual savings of about $150 million within three years of the deal closing, said it expects the deal to be beneficial to earnings and cash flow beginning in 2010.

CF Industries formally launched its hostile bid to buy rival Terra on Monday, and said it was still interested in holding talks with Terra to seal a deal. However, Terra has advised shareholders to reject the offer.

A Terra spokesperson was not immediately available for comment on Wednesday.

CF started with a bid of 0.4235 of a share for each Terra share. At Monday's closing prices, that offer was worth about $2.37 billion -- the offer expires on May 15.

CF has also said it plans to nominate three directors to replace three members of Terra's board at this year's annual meeting.

Terra has a classified board with staggered terms. Three directors will be elected to serve a three-year term at this year's annual meeting.

Even if the proposed deal does find favor with Terra's shareholders, it could run into regulatory hurdles, as a combination of the two companies would create the largest global producer of nitrogen fertilizer, which is a key nutrient for corn.

($1=$1.26 Canadian)

(Reporting by Scott Anderson and Euan Rocha; editing by Rob Wilson)