By Jacob Bunge
Farmer-owned cooperative CHS Inc. struck a multibillion-dollar
deal with fertilizer maker CF Industries Holdings Inc. that links
one of the world's top producers of nitrogen fertilizer with the
biggest U.S. wholesaler of crop nutrients.
In a deal that extends a spate of tie-ups in the fertilizer
sector, CHS will invest $2.8 billion in a CF subsidiary in return
for the right to buy a slice of its production capacity at market
prices.
CHS, based in suburban St. Paul, Minn., will pursue the deal
with CF instead of moving ahead with plans to build its own
nitrogen plant, a long-range plan that had grown costlier and more
risky since CHS first announced the project last year, CHS Chief
Executive Carl Casale said.
"This lets [each company] focus on what we do well," Mr. Casale
said in an interview. For CHS, the deal "will free us up to look at
other opportunities."
Shares of CF Industries were 8% higher at $61.55 in afternoon
trading Wednesday.
CHS is the largest U.S. farmer cooperative, operating a network
of grain elevators, retail stores and fuel operations across the
Midwest. The company generated $42.7 billion in sales last year and
bills itself as the largest U.S. fertilizer wholesaler.
CF's tie-up with CHS is the latest in a series of planned deals
that would reshape the global market for crop nutrients after
several years of bumper crops have pushed commodity prices lower
and crimped farmers' income, forcing them to scrutinize spending on
seeds, sprays and fertilizer.
CF, based in Deerfield, Ill., last week unveiled plans to buy
assets of Netherlands-based fertilizer producer OCI NV in an $8
billion deal that would create the largest global provider of
nitrogen fertilizer, and shift the combined company's corporate
base to the U.K. The deal includes the assumption of $2 billion of
debt.
Separately, German salt and fertilizer company K+S AG has
rebuffed unsolicited takeover approaches from Canada's Potash Corp
of Saskatchewan Inc. that valued K+S at about $8.63 billion.
CHS's deal with CF will more closely link the fertilizer company
with a client that regularly ranks among CF's top three customers,
according to CF Chief Executive Tony Will.
"CHS is a huge player in North America," Mr. Will said on a
conference call Wednesday. "Our business with them has fluctuated
up and down but they've always been a significant customer."
The move could also help CF protect profit margins for the
company's fertilizer by preventing the entry of a significant new
plant hooked up to a major fertilizer buyer, according to Joel
Jackson, an analyst with BMO Capital Markets.
As part of Wednesday's deal, CHS will be entitled to semiannual
profit distributions. It will also be able to buy up to 1.7 million
tons of urea and UAN, a solution of urea and ammonium, at market
price each year--8.9% of CF's production capacity.
CHS's Mr. Casale said his company approached CF about the
arrangement as CHS faced mounting challenges to its own plan to
build a nitrogen plant in North Dakota, including difficulties with
the water supply and "significant cost escalations." While the
investment ranks as the largest in the cooperative's history, Mr.
Casale said, it could save about $500 million in construction
costs. Earnings from fertilizer sales under the new arrangement,
expected to begin next year, could become CHS's second-largest
source of profits, he said.
Mr. Casale said the deal gives CHS more financial firepower and
frees up its managers to focus on other ways to expand its
business, as the company invests in crop processing, ethanol plants
and port facilities to build out its grain-trading
capabilities.
Angela Chen contributed to this article.
Write to Jacob Bunge at jacob.bunge@wsj.com
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