A three-way takeover stalemate that has gripped North America's fertilizer industry for more than a year saw some signs of easing on Thursday, with CF Industries Holdings Inc. saying it is dropping its hostile pursuit of U.S. rival Terra Industries Inc.
The move clears a key obstacle out of the way for Calgary-based Agrium Inc., which has had its sights set on CF since last February, but has seen all of its overtures rebuffed.
Agrium's more than $5.4-billion (U.S.) offer for CF was made on the condition CF abandon its efforts to take over Terra.
Both hostile takeover bids and the trend towards consolidation come as the fertilizer industry benefits from strong demand for its crop-enhancing products around the world, especially in Asia.
An Agrium spokesman said late Thursday that the company was surprised by the CF announcement, but did not immediately have any other comment.
Despite repeated improvements to Agrium's offer for CF, the target company had said it would prefer a combination with Terra, based in Sioux City, Iowa.
However, CF acknowledged Thursday that an acquisition of Terra would no longer be best for its shareholders.
"It is clear that an acquisition of Terra now would require a significant increase in our offer, given the substantial uplift in equity values in the fertilizer sector," Stephen Wilson, chairman, president and chief executive of CF Industries, said in a statement.
"While the strategic merits of a transaction are undeniable, it is not in the best interests of CF Industries stockholders to increase our offer to the level that we believe now would be required for Terra to agree to an acquisition."
"We are, of course, pleased that prospects for nitrogen and phosphate fertilizers have improved in the view of investors, a view we share."
CF has sold all of the Terra shares it acquired, bringing in money it says more than offset what it has spent pursuing Terra.
Agrium is offering CF $45 in cash plus one Agrium share. Based on the Thursday afternoon price for Agrium's shares on the New York Stock Exchange, its cash and stock offer was worth more than $110 per CF share.
Agrium has been stalking CF since last February, but all of its overtures to the company's leaders have been rejected. CF's management has repeatedly declined invitations to negotiate with the would-be buyer.
Agrium's quest has been complicated by CF's so-called poison pill provision, which is meant to protect shareholders in the event of a hostile takeover by preventing hostile suitors from taking up any of the shares tendered.
Unlike in Canada, a poison pill can remain in effect indefinitely in most U.S. jurisdictions.
Essentially that means the acquisition can't go through unless the CF board of directors is on side, even if a majority of shareholders are in favour of the offer.