Yara International ASA has signed a cash merger agreement with Terra Industries Inc. at a price of $41.10 per Terra share, representing a market capitalization of Terra of $4.1 billion. The transaction will give Yara an improved position in the U.S., and is planned to be supported by a Yara rights issue of $2.0-2.5 billion.
The agreed Terra share price of $41.10 represents a premium of 23.6% above the closing price on 12 February 2010.
"Yara is committed to the U.S. market, and this transaction presents an attractive opportunity for both companies to strengthen their positions in the U.S. Yara and Terra are a perfect fit, and the combination will elevate Yara to a truly global leader in the industry. Both companies are strong in ammonia and nitrates, and have complementary geographical footprints. Terra’s ammonia and upgraded fertilizer distribution system in the U.S. will be combined with Yara’s global sourcing and optimization capabilities as the world’s largest producer and trader of fertilizer and ammonia", says Jørgen Ole Haslestad, president and CEO of Yara International ASA.
Terra owns and operates six nitrogen manufacturing facilities in North America and owns a 50% interest in joint ventures in Trinidad and the UK, the latter in partnership with Yara. Terra has total production capacities of approximately 3.6 million tons ammonia, 3.0 million tons UAN, 1.2 million tons AN, 0.3 million tons urea and 0.3 million tons NPK, including those from its equity shares in its joint ventures. The company reported in 2008 and for twelve months ended 30 September 2009, turnover of $2.9 billion and $1.9 billion respectively, and net income of $641 million and $321 million, respectively. Terra has approximately 940 employees in the U.S. and Canada.
"We have signed the merger agreement on the basis of Yara’s proven M&A value creating track record, a positive fertilizer market outlook and the improved competitive edge of U.S. nitrogen producers. The structural changes over the last years in the global and U.S. gas market with ample LNG and shale gas have strongly improved the U.S. producers cost position. North American producers are in addition benefiting from logistical advantages as the U.S. will continue to need large imports of nitrogen, and the high construction costs for new plants now favor existing production capacity", Ole Haslestad says.
Yara has identified yearly cost synergies with pre-tax effects of $60 million to be harvested within a year after closing. In addition, Yara is targeting soft synergies of the same magnitude, including improved utilization and optimization of logistical systems.
Terra has delivered an average annual adjusted EBITDA of $613 million over the last three years ending September 2009. The estimated enterprise value of $4.3 billion corresponds to an EBITDA multiple of 7.0 before synergies and 5.9 after synergies.
The transaction has been unanimously approved by Yara’s Board of Directors and unanimously approved by Terra’s Board of Directors. The closing of the transaction is subject to customary closing conditions, including the approval by Terra’s shareholder meeting, the approval by Yara’s general meeting of the rights issue and approvals from relevant regulatory authorities. The transaction is currently planned to be closed around June 2010. The transaction is not subject to other financing conditions than the approval by Yara’s general meeting of the rights issue.