3rd UPDATE: Agrium Will Keep Capacity If CF Bid Succeeds -CEO

The top executive at Agrium Inc. (AGU) said it was the right time to buy rather than build fertilizer production after proposing a $3.6 billion bid for CF Industries Holdings Inc. (CF).

Mike Wilson, chief executive of Calgary-based Agrium, said there were no plans to reduce capacity if it is successful in an approach that would break its target's own hostile bid for Terra Industries Inc. (TRA), another U.S.-based producer.

The global fertilizer industry is awash with capacity after a sharp climb in prices led farmers to defer and reconsider orders following the slide in global commodity prices since last August.

"When you look at buy versus make, it's the right time to buy," Wilson told Dow Jones Newswires.

He said Agrium's bid plan was accelerated after CF Industries launched its bid for Terra, having tracked the Illinois-based company since unsuccessful acquisition talks in 2005.

He made no comment on whether sector valuations have bottomed after a dramatic spike and relapse over the past 18 months.

The proposed combination would create the world's fourth-largest provider of crop nutrients, with annual sales of almost $14 billion, and a global leader in nitrogen-based products as well as phosphate and potash products.

Agrium said it would offer the equivalent of $72 a share in cash and stock for CF Industries - based on Tuesday closing prices - and aimed to close by the end of the second quarter.

Wilson said he had talked to CF Industries' CEO Steve Wilson Wednesday, who said any response would be up to the board. Directors later issued a statement, and said the board would make a determination on Agrium "in due course."

CF launched a proxy battle and an all-stock tender for Terra on Monday after its unsolicited offer was rejected by its target's board. The offer expires May 15.

Agrium's Wilson said the company had no interest in acquiring Terra.

Investors in the fertilizer sector have seen a boom-and-bust cycle over the past 18 months,with stock values doubling on soaring demand and prices before commodity markets reversed course from record highs in mid-2008.

However, fertilizer, seed and farm equipment producers remain bullish on long-term demand trends driven by demographic changes, notably rising demand in emerging markets.

Agrium's Wilson said nitrogen capacity shut in at the end of last year was restarting and phosphate demand was "coming back", though appetite for potash was "still off."

Commodity prices remain well above their five-year averages, and analysts expect demand and supply conditions to balance as producers cut inventory. Demand will hinge in part on the level of fertilizer-intensive corn planting in the northern hemisphere this year.

CF acknowledged antitrust issues in its own pursuit of Terra, although it said these could be overcome, while Agrium's Wilson said no such problems are seen for its proposed combination.

Agrium said it would offer one of its own shares and $31.70 in cash for each CF Industries share, a proposal that was fully funded from internal and external resources and not expected to impact its credit rating.

The terms represent a 30% premium over CF Industries' Tuesday close, but after climbing as high as $66.58 earlier Wednesday, the stock was recently up 11.3% at $61.08, having peaked last year at $172.99.

Agrium shares were down 7.4% at $37.30 on Wednesday, having slid from a peak of $113.88 last June. Terra was off 1.2% at $24.52.

Agrium's Wilson said the North American operations of Agrium and CF Industries were complementary, adding its target's strength in the eastern corn belt and Gulf coast to the Canadian company's presence in the west. Internal distribution was also viewed as a good fit.

Agrium is targeting synergies of about $150 million from the combination within three years of closing. Wilson said it would be accretive to earnings in 2010 and "highly" accretive the following year.

-By Doug Cameron, Dow Jones Newswires; 312-750-4135; [e-mail]

(Carolyn King and Rebecca Townsend contributed to this report.)