Fertilizer maker CF Industries Holdings Inc. (CF) said Monday that its board of directors recommended that the company's shareholders reject Agrium Inc.'s (AGU, AGU.TO) hostile offer to acquire the company, saying it was grossly inadequate and substantially undervalued CF Industries. Instead, the company's board reaffirmed its intention to pursue the acquisition of rival Terra Industries Inc. (TRA) and sweetened its offer.

CF Industries said its board believes Agrium's offer does not reflect the intrinsic value of the company, resulting in virtually no economic premium to CF Industries stockholders, and no premium for control of CF Industries. Further, the board said that the timing of Agrium's offer was opportunistic as the offer, which includes a substantial cash component, takes advantage of the recent decline in share prices across the fertilizer sector and global equity markets.

Further, CF Industries noted that approximately 44% of the total consideration is payable in cash and added that if the Agrium transaction were completed, the company's stockholders would not be to participate in any recovery of the fertilizer sector or the global equity markets to the extent of the cash consideration. In addition, the substantial cash component would prevent the company's stockholders from fully participating in the realization of any synergies resulting from the consummation of the transaction. The board also termed Agrium's offer as an attempt to interfere with CF Industries' proposed strategic business combination with Terra Industries.

Less than a month after the board of Illinois-based CF Industries rejected its buyout offer, Canada-based nutrients maker Agrium took its takeover bid directly to CF shareholders. The company said in mid-March that it has commenced an exchange offer to acquire all outstanding shares of CF Industries at an exchange ratio of 1.0 common share of Agrium common stock plus $31.70 in cash. CF stockholders will also have the option of electing to receive for each CF share either 1.7866 common shares of Agrium or $72.00 in cash, subject to proration.

Agrium said at that time that CF Industries' refusal to engage in discussions left it with no choice, but to take its offer directly to CF stockholders. Agrium noted that the offer and withdrawal rights will expire on May 19, unless extended, and added that its proposal is conditioned on CF Industries terminating its pursuit of Terra. Agrium reiterated that its offer is a far superior alternative for CF stockholders as they receive a premium rather than pay a premium to Terra stockholders.

According to Agrium, its offer is not subject to a financing condition as it has sufficient cash resources and committed financing underwritten by Royal Bank of Canada and The Bank of Nova Scotia to fund the cash portion of the bid.

The fertilizer prices, which were astronomical at both the wholesale and retail level until June of 2008, have since fallen dramatically due to the economic meltdown, and so, have the prices of fertilizer stocks. With the market malaise eroding valuations, big players are stepping up deal making, targeting potential bargains. The favorable environment for merger and acquisition activity has led to a three-way takeover tussle in the fertilizer industry. With fertilizer companies set to profit when fertilizer prices rebound, the bidding wars may intensify in the days to come.

In a separate press release Monday, CF Industries said that its board of directors reaffirmed its intention to pursue a business combination with the Sioux City, Iowa-based Terra Industries and has sent a letter to Terra's board of directors. The company sweetened its deal to acquire Terra by offering to pay $30.50 for each Terra share, with an exchange ratio between 0.4129 and 0.4539 of a CF Industry share.

The company noted that the $30.50 per Terra share is a premium of over 85% to Terra's stock price before CF Industries made its original offer on January 15, 2009.

The company said it believes that its proposed strategic business combination with Terra Industries will create superior value for CF Industries stockholders and provide a significantly better growth platform than a combination with Agrium.

In the letter to Terra's board of directors, Stephen Wilson, Chairman, President and CEO of CF Industries said, We continue to believe that a business combination between CF Industries and Terra is a compelling combination with a number of strategic benefits. We are confident that Terra's stockholders agree with us and will show their support for the transaction by voting for our slate of directors at Terra's 2009 Annual Meeting.

Morgan Stanley and Rothschild are acting as financial advisors to CF Industries, while Skadden, Arps, Slate, Meagher & Flom LLP is acting as its legal counsel.

In a bid to create a leader in the global fertilizer industry, CF Industries had in January offered to acquire Terra for $2.1 billion in stock. Under that proposal, each common share of Terra was entitled to receive 0.4235 shares of CF Industries.

However, barely days after CF industries tabled its buyout bid for Terra, the company found itself in the crosshairs of bigger rival Agrium. CF had rebuffed Agrium's buyout offer earlier this month, terming it grossly inadequate and an attempt to interfere with its own proposed business combination with Terra.

The same day, CF sweetened its bid for Terra by nearly 38% - by willing to offer $27.50 in stock for each Terra share, with an exchange ratio not less than 0.4129 CF shares and not more than 0.4539 CF shares. However, Terra snubbed CF's takeover bid for the second time, saying that even the revised offer substantially undervalues Terra both absolutely and relative to CF.

Meanwhile, CF Industries has also launched a fight to unseat Terra's board after its takeover attempts were repeatedly rejected by that company. The company is seeking to replace three members of Terra's board of directors. In preliminary proxy materials filed with the Securities and Exchange Commission on March 12, CF has sought to nominate John Lilly, president of John Lilly Strategic Insights LLC, David Wilson, CEO of the Graduate Management Admission Council and Irving Yoskowitz, senior counsel at Dickstein Shapiro LLP.

In Monday's regular trading session, CF is trading at $69.22, up $1.54 or 2.28% on a volume of 11,050 shares. The stock has been trading in a range of $37.71-$172.99 in the past 52 weeks.

AGU is trading at $37.43, up $1.17 or 3.23% on a volume of 1,300 shares. The stock has been trading in a range of $22.08-$113.88 in the past 52 weeks.

TRA is trading at $27.01, up $0.41 or 1.54% on a volume of 5,100 shares. In the 52week period, the stock has been trading in a range of $11.21-$57.64.

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