Dec. 3 (Bloomberg) -- Agrium Inc., North America's third- largest fertilizer producer, agreed to buy UAP Holding Corp. for $2.16 billion to double its U.S. retail outlets as demand for crop-protection products increases. Both companies' shares rose.

UAP investors will receive $39 in cash for each share, a 30 percent premium to the Nov. 30 closing price, Calgary-based Agrium said today in a statement. Agrium said it also will take on $487 million of Greeley, Colorado-based UAP's debt. The two companies expect the transaction to close early next year.

Agrium is buying UAP to boost fertilizer sales as demand rises for grains and oilseeds to produce food and fuel. The purchase also adds Loveland crop-protectants and UAP's Dyna-Gro seeds to Agrium's potash, nitrogen and phosphate fertilizers.

``The UAP acquisition will modestly improve Agrium's business position and is a good fit with the company's existing retail operations,'' Standard & Poor's analysts including Jatinder Mall said today in a note to investors. ``The company's retail operation will be the largest in North America and hold the No. 1 position in the crop protection, fertilizer and seed businesses.''

Buying UAP will add about 370 facilities in the U.S., roughly doubling the company's retail outlets in the country, Agrium Chief Executive Officer Mike Wilson said today on a conference call with analysts. The acquisition also boosts Agrium's business in regions such as the U.S. Southern Delta and Florida, where the company can serve new crop markets.

Shares Climb

Agrium rose C$3.53, or 6.1 percent, to C$60.93 at 4:10 p.m. in Toronto Stock Exchange trading. The shares have gained 67 percent this year. UAP added $8.37, or 28 percent, to $38.28 on the Nasdaq Stock Market, increasing its gain in 2007 to 52 percent.

The news also boosted shares of competitors on speculation they may be potential takeover candidates. Potash Corp. of Saskatchewan Inc., the world's largest fertilizer maker, rose C$4.62, or 3.9 percent, to C$123.42 in Toronto. Mosaic Co. gained $3.05, or 4.4 percent, to $72.20 in New York Stock Exchange composite trading.

U.S. farmers this year planted the most corn since 1944 to meet increasing demand for ethanol fuel additive. Corn requires more fertilizer than other crops such as soybeans and wheat.

``We're seeing the lowest global grain stocks in modern history,'' Agrium's Wilson said on the call today. ``Global fundamentals are among the strongest we've seen.''

Grain Reserves

Global reserves of corn and wheat before next year's harvest will fall 3.9 percent to the lowest since 1981, down 45 percent from a record in 2000, the U.S. Department of Agriculture said Nov. 9. Demand for fertilizers will increase as farmers boost planting to try to make up for production shortfalls, Agrium executives said on today's call.

The acquisition marks a further step away from Agrium's dependence on commodity fertilizer products toward a retail business, Banc of America Corp. analyst Marshall Reid said. The purchase follows that of Royster-Clark Ltd. in March 2006, which gave Agrium an additional 250 retail fertilizer centers in the U.S. Midwest and Southeast and 70 fertilizer-storage sites.

``Agrium has been focused on building out their retail business for some time,'' Reid said today in a note to investors. ``Part of the rationale, in our view, is the more stable cash flow through the cycle and higher returns on capital in the retail business tend to garner a higher multiple than fertilizer production,'' he said.

Cost Savings

Combining Agrium and UAP will generate annual savings of $115 million by 2010 and will add to earnings in the first year, the companies said. Agrium said it expects to raise $1.25 billion in equity to help finance the purchase.

The acquisition will ``slightly'' add to earnings on a per- share basis in the first year and be ``significantly'' accretive thereafter, Agrium said. Savings from the transaction will be $20 million next year, rising to $80 million in 2009 and $115 million from 2010 and beyond.

The purchase also more than doubles Agrium's seed business, in which both companies have had sales increases of more than 16 percent a year, and will give the retail business 265 proprietary and private-label brands.

RBC Capital Markets was financial adviser to Agrium and JP Morgan Securities Inc. advised UAP.

To contact the reporter on this story: Dale Crofts in Chicago at dcrofts@bloomberg.net.

Last Updated: December 3, 2007 16:18 EST