UPDATE: CF Board Rejects Agrium Bid, May Raise Terra Offer

CF Industries Holdings Inc. (CF) will take its sweetened hostile offer to shareholders of Terra Industries Inc. (TRA) Tuesday after rejecting an approach from rival fertilizer maker Agrium Inc. (AGU).

CF Industries lifted the value of its bid for Terra with a collar and also increased the forecast synergies from a deal as it prepared an investor roadshow and proxy battle ahead of Terra's annual meeting in May.

The move came as CF's board rejected a cash-and-stock approach from Agrium that it described as "grossly inadequate" and intended to interfere with its own effort to acquire Terra.

Deerfield, Ill.-based CF Industries said it would now pay $27.50 in stock for each share of Terra Industries (TRA), based on an exchange ratio ranging from 0.4129 to 0.4539, depending on its own stock price. This compares with an original ratio of 0.4235.

It is taking the offer on a series of investor roadshows, starting Tuesday in New York.

Terra shares have climbed sharply since CF made its move Jan. 15, but have remained below the offer price and were recently down $1.09, or 4.2%, to $25.01 while with CF was up $1.89, or 3.1% at $62.48.

Investors haven't ruled out the emergence of a white knight for Terra.

CF's improved terms were accompanied by an increase in the forecast annualized synergies to $105 million to $135 million. This compares with "over $100 million" when the offer was first made.

The company has nominated a slate of three alternative directors to the Terra board in an effort to promote its bid.

Agrium's plan to acquire CF, launched on Feb. 25, was contingent on the Terra offer being dropped. The move was viewed by analysts as an effort by fertilizer producers to take advantage of the drop in sector stock prices since last summer to buy up production capacity ahead of what they see as an inevitable turnaround in commodity prices.

"When you look at buy versus make, it's the right time to buy," Agrium Chief Executive Mike Wilson told Dow Jones Feb. 25.

On Monday, the CEO said the company was "disappointed" with the rejection but noted Agrium remained "fully committed to acquiring CF." He added an exchange offer would be launched shortly.

The combined entity would become the world's fourth-largest fertilizer producer, with annual sales of around $14 billion, and enhance Agrium's global presence in products based on nitrogen, phosphate and potash.

Prices for all three fertilizer ingredients soared last year as farmers sought to boost crop yields and take advantage of rising prices for corn, soybeans and wheat, only to see the boom reverse in August.

CF said Monday that Agrium's move isn't in the best interest of the company or its shareholders.

Agrium offered about $3.6 billion for CF on Feb. 25 in what would be a cash-and-stock deal valued at the time at $72 a share.

The Canadian company hasn't pursued a proxy battle after passing a deadline to nominate an alternative slate of CF directors.

The CF board can block any exchange offer for the company with a poison pill.

Agrium shares were up $1.34, or 4.2%, at $32.75.

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

(Steve Gelsi contributed to this report.)