UPDATE: Terra Likes CF's Bid, Gives Yara 5 Days To Sweeten

The board of Norway's Yara International ASA (YAR.OS, YARIY) is expected to meet Thursday to discuss whether to abandon its $4.1 billion bid for rival U.S. fertilizer maker Terra Industries Inc. (TRA).

Terra said Thursday that it views a hostile counterbid from CF Industries Holdings Inc. (CF) as superior, giving Yara five business days to boost its own all-cash offer or walk away with a $123 million break-up fee.

U.S.-based CF pursued Terra for more than a year, dropping its interest in January before re-emerging when Yara announced its agreed bid last month.

CF is also fending off its own hostile pursuit by larger rival Agrium Inc. (AGU). The Canadian company has said its bid is contingent on CF dropping its Terra bid.

Analysts lined up to caution Yara about raising an all-cash offer that trails CF's cash-and-stock bid by around 10%, based on Wednesday's prices. Yara, which is controlled by Norwegian state-owned enterprises, is also relying on a rights issue to fund the bid.

"The price Yara has offered for Terra is extremely steep," said Pareto Securities analyst Samir Bendriss in a note that pushed for the company to avoid a bidding war.

Rising commodity prices have sparked a flurry of deals in the crop-nutrient sector in recent weeks, and Terra's focus on nitrogen-based products has kept it among the most attractive operators. It has outperformed peers, with its share price doubling since November.

Yara has pledged to retain the management team of Terra, which bitterly opposed multiple efforts by CF to bring it to the negotiating table and agreed to buy assets from Agrium to help lift antitrust concerns over its own bid.

Bendriss at Pareto said Yara could still alter its tactics if Agrium succeeds in building support for its CF bid, which has been extended until March 22.

One person familiar with the situation noted that the drawn-out sector battle has become a key play of arbitrage traders, who are thought to control more than 50% of Terra.

CF is offering $37.15 in cash and 0.0953 of a share for each Terra share, valuing its bid at $46.74. Terra shares were recently trading at $46.60. Yara has offered $41.10 in cash.

Agrium is offering one of its own shares and $45 in cash for each CF share, valuing its target at $113.26, an 11.8% premium to the recent $101.09 share price. Agrium is also seeking to nominate two directors to the CF board and nullify the company's poison pill defense.

-By Doug Cameron, Dow Jones Newswires; 312-750-4135; [e-mail]; and Nathan Becker, 212-416-2855; [e-mail];

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