History tells us that unrelated events often change the course of wars, possibly even a fertilizer war. Today's Wall Street Journal reports that the Delaware Supreme Court has just ruled that: "Corporate directors should be afforded significant latitude and discretion in deciding whether to accept a merger offer...," overturning a lower court ruling in the process. In our view this represents a healthy (and deserved) kick in the pants to the plaintiff's bar. Congratulations are in order to Skadden, Arps, Slate, Meagher & Flom LLP who represented Lyondell Chemical and its Board in this closely watched case on corporate governance and fiduciary duties. Coincidentally CF Industries is incorporated in Delaware, and they are represented in the current fertilizer brawl by Skadden Arps...
March 2009 Archives
CF started off the week of 23 March by sweetening their offer for Terra by 11%. This effort elicited a prompt no thank you response the next day from Sioux City. At the same time, CF responded to Agrium's entreaties with a not so flattering assessment of the Calgary Team's business model and acquisition history. Those points made, CF then went on to indicate that Agrium could afford to pay USD 100 per share for CF. Agrium's offer at the time was valued at about ~$72 per share. Agrium responded on Friday, throwing some more chum on the water, nudging up their bid by $3 per share. In our view Agrium is going to have to put away their change purse and get out their check book if they want to close this deal. This is a sellers' market. Not only are fertilizer shares out performing the overall equity market, but Business Week has just ranked CF #2 on their list of top 50 corporate performers. CF is the only fertilizer company on this list; which evaluates companies on the basis of their long term performance. At this point Agrium might consider taking a lesson from their potash customers. In a similar vein, a wizened Japanese fertilizer salesman once told us, "No business is better than bad business".
From: John Hester
Sent: Monday, March 16, 2009
To: Jack Eberspacker
Cc: ARA Executive Committee
Subject: Agrium/CF Deal
Dear Jack and Executive Committee,
I am writing to voice my opposition to the continuing consolidation of North American fertilizer suppliers in general, and the hostile takeover attempt being made by Agrium with regard to CF Industries, in particular. It is my belief that the so called "synergies" that are projected to accrue as a result of the Agrium/CF merger will largely come at the expense of the American farmer and his traditional retail supplier.
Over the last ten years we have witnessed considerable consolidation amongst fertilizer manufacturers. The majority of these mergers were viewed as being necessary by the merging partners as well as their customers. However, we have now reached a point where further consolidation is no longer required to insure survival nor welcomed by those being swallowed up. Consolidation is now occurring to create an even more captive marketplace and further improve shareholder returns at the expense of the farmer and others in the supplier chain.
Fertilizer manufacturers have already amassed unprecedented earnings and pricing power as a result of their earlier consolidation. While amassing this leverage they have simultaneously downloaded much of their former price risk to the supply chain and to farmers. Further consolidation will allow fertilizer manufactures more freedom to dictate the price and terms of fertilizer movement and will leave farmers and retailers exposed to increased risk while handling and using a commodity that cannot be easily hedged.
Non-competitive manufacturers, retailers and farmers cannot be immune to failure. American agriculture depends upon our ability to compete in a global economy an no one's survival should be guaranteed. However, to insure the long term viability of American agriculture we must see to it that retailers and farmers are never forced into becoming captive customers.
Jack, many ARA members feel the same as I do on this issue. Some are fearful that the fertilizer companies could retaliate against them or that they may drop their membership if we object to further consolidation. I think we all need to remember that we are a RETAIL organization and that our efforts should be to the benefit of retailers 1st and then to the rest of the industry. Fertilizer manufactures have TFI to fight their battles and we have ARA. If we cannot show our disdain at some issue whether led by farmer groups or the manufacturers than why do we need a voice in D.C.
John F. Hester
Owner/Manager
Nichols Ag
Consolidation in the world's fertilizer industry continues. Although the global economic collapse has left many traditional corporate raiders humbled, if not penniless, recent prosperity in the fertilizer industry continues to fuel consolidation. This blog will focus on the current skirmishes in North America which the press has characterized in a number of ways. A Wall Street Journal blog used the headline "Love Triangle". Developing this theme we concluded that "Congo Line" might be a more appropriate handle, but we feared that both would have attracted the wrong attention. We finally settled on "Fertilizer Wars", a concept originally used by The New York Times' Deal Blog. Our goal is to provide a fair and balanced selection of press clips and links to timely articles on the current consolidation of the fertilizer industry in North America; with space for independent commentary from all segments of our industry.