CVR Partners (Sugar Land, TX) and Rentech Nitrogen Partners (Los Angeles) today announced that they have signed a definitive merger agreement under which CVR Partners will acquire Rentech Nitrogen for $533 million. The transaction excludes Rentech Nitrogen’s Pasadena, TX, facility, which will be retained by current holders of Rentech Nitrogen or sold separately for their benefit. The transaction price implies a total enterprise value of about $839 million. The transaction is the culmination of a review announced by Rentech Nitrogen in February, the companies say.
Under the terms of the transaction, each outstanding common share of Rentech Nitrogen will be exchanged for 1.04 shares of CVR Partners and $2.57 in cash. The value of the CVR Partners shares plus the cash consideration represents a 20.3% premium to the share value implied from the unaffected exchange ratio on 16 February, one day before Rentech Nitrogen announced its process to explore alternatives; and a 32.9% premium at the current exchange ratio.
CVR Partners is focused primarily on manufacturing nitrogen fertilizers. Rentech Nitrogen was formed by Rentech, Inc. to own, operate, and expand its nitrogen fertilizer business. Rentech Nitrogen’s assets consist of two fertilizer production facilities. Its East Dubuque facility is located in the northwestern corner of Illinois and uses natural gas as a feedstock to produce primarily anhydrous ammonia and urea ammonium nitrate solution. The Pasadena, TX, facility uses ammonia and sulfur as feedstocks to produce ammonium sulfate and ammonium thiosulfate fertilizers and sulfuric acid. Rentech Nitrogen is the largest producer of synthetic, granulated ammonium sulfate fertilizer in North America, the companies say.
“The merger of CVR Partners and Rentech Nitrogen Partners creates a new leader in the growing nitrogen fertilizer industry. Once the merger is complete, we will be the second-largest producer of urea ammonium nitrate in North America,” says Jack Lipinski, executive chairman of CVR Partners. “In addition to enhancing our current, attractive market position, we expect the merger will be double-digit accretive to distributable cash per unit before synergies,” Lipinski says.
“The addition of Rentech Nitrogen’s East Dubuque fertilizer facility increases our scale and diversifies our geography and raw material feedstock,” says Mark Pytosh, CEO of CVR Partners. “The merger also expands our footprint into the upper Corn Belt region, which has the largest concentration of users in the United States for the direct application of nitrogen fertilizer products.” Pytosh will serve as CEO of the combined company.
Rentech Nitrogen’s shareholders, upon the transaction’s closing, will own about 35.6%, and existing shareholders of CVR Partners will own about 64.4% of the combined company. The combined entity will have an enterprise value of over $1.6 billion.
“We believe that the resulting company will benefit from larger scale; diversification of plants, feedstocks, and markets; and reduced costs. We intend to immediately return to a focused process to sell the Pasadena facility before the closing of the merger with CVR Partners,” says Keith Forman, CEO of Rentech Nitrogen.
The combination of two pure-play, complementary nitrogen fertilizer producers creates an entity of significantly increased scale and production capacity, improved overall operating reach, and greater cash flow generation, the companies say. The combined entity will also benefit from the world’s most attractive grain market in the mid–Corn Belt, in addition to competitive and diversified feedstocks.
Each company plans to increase the output of products and improve efficiency. CVR Partners’ output of ammonia is expected to increase by approximately 75 m.t./day in the second half of 2016 as a result of additional hydrogen supply, which will be available from the hydrogen plant currently under construction at the adjacent Coffeyville, KS, refinery of CVR Refining. Rentech Nitrogen expects to increase its ammonia production by 50 m.t./day beginning in the second half of 2016, following the completion of the ammonia converter project that is currently under way.
The board of directors of each company has approved the transaction. The merger is expected to be complete by the end of 2015 and no later than 31 May 2016. The merger is also subject to Rentech Nitrogen disposing of the Pasadena facility, either by sale to a third party or through the creation of a separate entity that owns the facility, to be retained by shareholders of Rentech Nitrogen.
Morgan Stanley served as the financial adviser to Rentech Nitrogen, and Latham & Watkins served as Rentech Nitrogen’s legal adviser. Vinson & Elkins served as legal adviser to CVR Partners.
By Deepti Ramesh
