Farmer Co-op Strikes $2.8 Billion Fertilizer Deal With CF

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CHS Inc., the largest U.S. farming cooperative, agreed to form a venture with fertilizer producer CF Industries Holdings Inc. while scrapping a planned crop-nutrient factory in North Dakota.

CHS will acquire a stake in a CF subsidiary for $2.8 billion, guaranteeing it an annual supply of as much as 1.7 million tons of nitrogen-based fertilizer, the companies said Wednesday in a statement. The cooperative chose the CF deal over building its Spiritwood plant because of faster returns from the venture’s “meaningful” fertilizer position, CHS Chief Executive Officer Carl Casale said by telephone.

“We don’t have to wait four years for it to be up and running,” said Casale, 54. “CF was a better alternative for our owners.”

The U.S. nitrogen-fertilizer industry is going through a period of upheaval as it expands capacity, spurred on by cheap natural gas, a raw material used in the production process. Last week, Deerfield, Illinois-based CF agreed to buy assets from OCI NV of the Netherlands for about $5.4 billion in cash and shares to create the world’s largest publicly traded producer of nitrogen crop nutrients.

For CF, the deal with CHS should alleviate any antitrust concerns surrounding the OCI transaction, CF Chief Executive Officer Tony Will said on a conference call.

The tie-up announced Wednesday is tantamount to creating “another live competitor in the market space, just as though” CHS had acquired a plant from somebody else, Will said. The CHS accord also improves CF’s flexibility to finance the OCI deal.

CF rose 7.6 percent to $61.64 at the close in New York.

Fertilizer Plants

CHS will pay for the cash deal with debt, cash on hand and preferred stock it has already issued, Casale said in the interview.

CHS is owned by U.S. farmers, ranchers and cooperatives, and supplies food, crop nutrients and animal feed. The Inver Grove Heights, Minnesota-based company also operates petroleum refineries and pipelines.

The CF transaction will see CHS take a stake in CF Industries Nitrogen LLC, which owns three U.S. production plants in Louisiana, Iowa and Mississippi. CF plans to contribute an Oklahoma factory to the unit prior to the completion of the deal, which is expected Feb. 1.

CF’s financial advisers are Morgan Stanley and Goldman, Sachs Group Inc., its legal adviser is Skadden, Arps, Slate, Meagher & Flom LLP and its tax adviser is Kirkland & Ellis LLP. CHS’s legal adviser is Baker & McKenzie LLP.