CF, OCI Ditch Merger, Citing New U.S. Tax Rules--2nd Update

By Ian Walker and Maarten van Tartwijk 

Fertilizer maker CF Industries Holdings Inc. and Dutch rival OCI NV called off their planned $8 billion fertilizer merger, the latest multibillion-dollar transaction to fall foul of changes to U.S. tax rules designed to restrict so-called inversion deals.

The two companies said they were unable to come up with a structure for the deal to combine CF with OCI's distribution operations that would create value for both sets of shareholders, citing a tougher regulatory and commercial environment in a joint statement on Monday.

"The [U.S.] Treasury announcement on April 4, 2016 materially reduced the structural synergies of the combination," the companies said.

The decision is the latest deal to fall apart after the U.S. Treasury last month announced another wave of administrative action against inversions, which had helped drive mergers-and-acquisitions activity to record highs as U.S. companies looked to foreign deal making to lower their tax bill.

In an inversion deal, U.S. companies take a foreign address in a country with a more favorable tax regime, typically through merging with a smaller firm. It enabled them to repatriate foreign profits without paying U.S. taxes.

The crackdown on tax-fueled mergers led Pfizer Inc. and Allergan PLC last month to abandon their planned $150 billion merger which would have moved the biggest drug company in the U.S. to Ireland. The companies said their decision was driven by adverse changes in tax law.

CF Industries of Deefield, Ill. and OCI initially planned to register the combined company in the U.K., lowering its overall tax rate to 20% from 34%. The companies subsequently agreed in December to move the tax residency to the Netherlands, where the corporate tax rate is 25%, to satisfy tougher inversion rules put in place last November by the Treasury.

CF Industries sought to acquire the European and North American operations of OCI as well as its global distribution assets. OCI was established in Egypt by the Sawiris, a prominent Egyptian business family, but it is incorporated and listed in the Netherlands.

A deal would have created a global nitrogen-fertilizer giant. CF is one of the world's largest manufacturers and distributors of nitrogen fertilizers used for agricultural purposes while OCI--which operates in Egypt, Algeria, the Netherlands and the U.S.--makes natural-gas-based fertilizers and industrial chemicals.

It comes at a time when consolidation has intensified in the agrochemicals sector. Germany's Bayer AG has made an unsolicited $62 billion bid for seeds supplier Monsanto Co. Swiss pesticide and seeds company Syngenta AG agreed to a $43 billion takeover by China National Chemical Corp., known as ChemChina, earlier this year.

CF Industries will pay OCI a $150 million breakup fee. Shares in OCI fell more than 9% in Amsterdam after the announcement.

OCI chief executive Nassef Sawiris said he hoped to explore "alternative ways of collaboration or structures" with CF Industries in the future.

Write to Ian Walker at [e-mail] and Maarten van Tartwijk at [e-mail]

(END) Dow Jones Newswires

May 23, 2016 08:42 ET (12:42 GMT)

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