CF Fertilizer Deal Faces Uncertainties After Inversion Move

  • U.S. Treasury aims to curb tax benefits of such deals
  • Guidelines compound pressure on CF share price, BMO says

CF Industries Holdings Inc.’s plans to cut its tax bills by shifting its legal address to the U.K. faces uncertainties, according to analysts following the deal, after the U.S. Treasury Department released new guidelines to curb so-called inversions.

The Treasury Department issued rules Thursday meant to block inversions in which a U.S. company adopts a foreign address by buying a company in a third country. CF, a fertilizer maker based in Deerfield, Illinois, is planning to get a U.K. tax address through a $5.4 billion acquisition of assets from Netherlands-based OCI NV.

It’s unclear whether the rules would apply to the specific corporate structure that CF is planning to use, and representatives from CF and OCI didn’t immediately respond to messages seeking comment. CF fell 5.7 percent in New York.

CF’s is the only one of three pending inversion transactions that involves adopting a tax address in a country that’s different from that of the foreign merger partner. CF said in August, when it announced the deal, that it expected to get about $500 million of after-tax cost savings. Most of that would come from paying tax at the lower U.K. corporate rate of 20 percent, Paul A. Massoud, an analyst at Stifel Nicolaus & Co. in Washington, said Thursday in a note.

‘Under Pressure’

“We think this latest U.S. Treasury guidance adds uncertainty to the deal closure and potential synergy benefits,” Andrew Wong, an analyst at RBC Capital Markets in Toronto, said Thursday in a note. “We will wait for further clarity and guidance from management before making a definitive conclusion.”

OCI fell 3.9 percent to 23.05 euros in Amsterdam. CF dropped to $43.90 in New York after sliding 6.1 percent the day before.

“CF’s share price will likely remain under pressure as this development compounds an already blurry setup” amid weaker prices for nitrogen-based fertilizer, Joel Jackson and Milan Shah, analysts at BMO Capital Markets, said Friday in a note. CF said earlier this month that prices were under pressure from lower global demand and “significant availability” of supply.

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