UPDATE: Agrium Targets CF Industries; Would Break Terra Bid

Agrium Inc. (AGU) made a proposed $3.6 billion offer for rival CF Industries Holdings Inc. (CF) in a move that could break up its target's hostile bid for Terra Industries Inc. (TRA).

The Canadian company said it would offer the equivalent of $72 a share in cash and stock for its smaller competitor, adding that this was fully financed and contingent on CF dropping its pursuit of Terra.

Calgary-based Agrium said it had first approached CF in 2005, but its move also signals that valuations in the sector may have bottomed after a dramatic spike and relapse over the past 18 months.

Deerfield, Ill.-based CF had no immediate comment. The company launched a proxy battle and an all-stock tender for Terra on Feb. 23 after its unsolicited offer was not accepted by its target's board. The offer expires May 15.

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

CF acknowledged antitrust issues in its own pursuit of Terra, although it said these could be overcome.

Agrium said it would offer one of its own shares and $31.70 in cash for CF, creating a company with annual revenues of $14 billion.

The terms represent a 30% premium over CF's Monday close, but after climbing as high as $66.58 earlier, the stock was recently up 14% at $63. CF shares peaked last year at $172.99.

Agrium shares were down 8% at $37.16 and Terra was off 2.4% at $24.31.

Agrium said adding CF's strong North American nitrogen, phosphate and extensive crop-nutrient-distribution assets to its own global wholesale and retail capabilities "would greatly enhance our existing portfolio and enable us to create a premier global franchise across the entire agricultural value chain."

The company said the combined entity would be a leader in nutrient production and distribution, adding that it expects to realize substantial annual operating synergies of about $150 million from the combination within three years of closing.

The proposal isn't subject to a financing condition, Agrium added, noting that it has sufficient cash resources and committed financing to fund the cash portion of the proposal.

Agrium is hosting a conference call at 10.30 a.m. EST.

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

(Carolyn King contributed to this report.)