As a move to solidify lower United State fuel costs, Yara International ASA consented to purchase Terra Industries Inc. for $4.1 billion today. Yara International ASA is one of the largest fertilizer producers in the world.
The purchase will be made through the payment of $41.10 per Terra share and raising the cash with $2.5 billion rights offer. On February 12, 2010 Terra had closed with a $33.24 price in New York.
Yara International ASA’s offer shows an increase of 24% in that price. As a result, Yara International ASA fell by the largest percentage that is has in eight months in Oslo.
In Sioux City, Iowa, where Terra Industries is based, Terra committed to giving Yara the six North American plants that are primarily used for producing nitrogen-based fertilizer. As the recession has continued and there has been a heightened supply of shale, the price of the nitrogen has fallen be over 64%.
Many financers agree with Yara’s move to gain control of more United State gas, but they believe that Yara paid too much for it. Research showed that Yara is paying almost 13 times Terra’s net income.
Joergen Ole Haslestad, Yara’s Chief Executive Officer, said “Yara is committed to the U.S. market, and this transaction presents an attractive opportunity for both companies to strengthen their positions in the U.S. … Both companies are strong in ammonia and nitrates, and have complementary geographical footprints.”
Haslestad believes that this buyout will become profitable almost instantaneously due to Yara Industrial Inc.’s share of the world’s ammonia market of 8%. In Oslo trading Yara fell to 225.7 kroner, but this loss was expected.
Henrik Sinding, an analyst at Carnegie ASA in Oslo, said the purchase of Terra Industries “will require a relatively big rights issue, so it’s fair that the shares should fall… Given that the price is OK and the rationale behind it makes sense, we don’t expect to make any changes to our recommendation on the back of this.”
After this transaction Yara will benefit from a pretax cost savings of $60 million within one year of the completion of the contract which will take place in June. The rights offer may be completed as early as May.
Yara International Inc. does not expect outstanding merging costs because Terra Industrial is well kept and uses modern technology. Employees will be laid off, but they have not stated how many yet.
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To read more about Yara International’s purchase of Terra Industrial visit:
http://www.bloomberg.com/apps/news?pid=20601103&sid=aRsfbjzRGKjY