CF Industries Holdings eliminated a key rival when it bought Terra Industries last year, but so far surging corn prices rather than the deal’s benefits have driven the fertilizer producer’s stock.
CF makes nitrogen and phosphate fertilizers, both crucial material for farmers. The company spent most of 2009 and part of 2010 in hot pursuit of Terra, all the while fending off a hostile bid from Canada’s Agrium.
Ultimately, CF emerged the winner of the so-called fertilizer wars when it clinched Terra for $4.6 billion in cash and stock, more than double the initial offer.
The deal made CF the world’s second-largest producer of nitrogen, after Norway’s Yara, by increasing its number of fertilizer plants to seven from two.
The buyout also brought access to pipelines and barges in the U.S. Midwest, the world’s largest corn-growing region.
But the acquisition has yet to lift CF’s stock above pre-recession levels, in part because Wall Street is less focused on Terra’s benefits and more concerned with the price of corn, which unlike soy requires nitrogen fertilizer.
“Without a doubt, the impact of the Terra deal has been relatively minor,” said Alan Rowsell of Standard Life Investments, which owns about 910,000 shares of CF. “The key driver for CF’s stock over the last year has been the rise in the price of corn.”
Corn futures on the Chicago Board of Trade have doubled since March 11, 2010, the day before the Terra deal closed, and were trading around $7.12 a bushel at midday Wednesday.
CF shares have climbed 32 percent during the same period. By comparison, shares of Potash Corp (POT.TO) are up 54 percent, shares of Agrium have jumped 38 percent, and shares of Mosaic Co. have added 41 percent.
CF shares were trading at $136.40 at midday Wednesday.
“I don’t see any reason why this stock couldn’t have gone to $140 without this (Terra) deal,” CLSA analyst Mark Connelly said. “I don’t think this deal created an ounce of value.”
CF Chief Executive Steve Wilson disagreed, saying shareholders should continue to expect benefits from the buyout.
“We believe there’s more good news to come as the full realization of identified synergies, the benefits of our rapid debt repayment, and current fertilizer market conditions get reflected in financial markets,” Wilson said in a statement to Reuters.
