Fertilizer producer Terra Industries Inc told proposed merger partner Yara International to improve its takeover bid, saying an offer from CF Industries Holdings Inc is superior.

Yara has five business days to either match or exceed CF's offer, Terra said on Wednesday. If the deal falls apart, Yara will get a $123 million breakup fee.

A Yara representative was not immediately available for comment.

CF took its offer for Terra hostile last week. The company had been trying for more than a year to buy Terra, but then backed away earlier this year.

That prompted Yara to make its offer. CF swooped back in last month with a sweetened deal.

CF has offered $37.15 cash and 0.0953 of a share for every Terra share. At Tuesday's close, the deal was worth $4.68 billion.

Yara had bid $41.10 per share, or $4.1 billion, all in cash.

CF's bid has already been cleared by regulatory authorities, and the company believes it can close a deal in less than 30 days.

We believe that Terra is worth more to CF Industries than to any other acquirer, given the strategic benefits of the transaction, including synergies, which only CF Industries can achieve, CF Chief Executive Officer Stephen Wilson said in a statement Wednesday morning.

The deal would dilute the stake of current CF shareholders and create one of the continent's largest producers of nitrogen, an essential fertilizer for farmers.

Shares of Terra rose 0.9 percent to $46.25 in premarket trading, while CF fell 1.5 percent to $99.10.

(Reporting by Ernest Scheyder and Michael Erman; Editing by Lisa Von Ahn)