CF Industries Holdings on Thursday said that it has entered a definitive agreement with OCI NV (Amsterdam) under which CF will combine with OCI’s European and North American operations as well as its global distribution business in a transaction valued at approximately $8 billion, based on CF’s current share price, including the assumption of approximately $2 billion in net debt. The transaction, which has been unanimously approved by the boards of directors of both companies, will create the world’s largest publicly traded nitrogen company. It also gives CF Industries an entry into the methanol market.
The transaction includes OCI’s nitrogen production facilities at Geleen, Netherlands, and Wever, IO, and the company’s interest in an ammonia and methanol complex at Beaumont, Texas, along with its global distribution business based in Dubai. The combined entity will also purchase a 45% interest plus an option to acquire the remaining interest in OCI’s Natgasoline project in Texas, which on completion in 2017 will be one of the world’s largest methanol facilities. On a combined basis the company will have production capacity of approximately 12 million nitrogen-equivalent nutrient tons by mid-year 2016.
Under the terms of the agreement, the new corporation will become a subsidiary of a new holding company domiciled in the United Kingdom, where CF is the largest fertilizer producer following its recent acquisition of the 50% it did not already own in GrowHow (Billingham) from Yara. OCI will contribute its European, North American and global distribution businesses to the new UK company in exchange for shares equal to a fixed 25.6% of new CF plus $700 million to be paid in a mix of cash or shares at new CF’s discretion, of which $550 million is assumed to be paid in shares. Additionally, the new CF will have an agreement to purchase a 45% interest in Natgasoline for approximately $500 million in cash. On completion of the transaction and based on the current share price, CF shareholders would own approximately 72.3% of the new company and OCI would own approximately 27.7%. Most of OCI’s shares will be distributed to its shareholders. Final consideration mix of cash and new CF stock and resulting ownership split will depend on the CF share price at the time of closing.
The new corporation will operate under the name CF and be led by existing CF management. The initial board of the new corporation will have 10 directors, consisting of eight of CF’s current directors, as well as Greg Heckman, former CEO of The Gavilon Group, and current OCI NV board member, and Alan Heuberger, senior portfolio manager for Bill & Melinda Gates Investments (BMGI). The combined company will maintain its principal executive offices in Deerfield, IL and will be listed on the New York Stock Exchange under the ticker symbol CF.
CF expects to achieve approximately $500 million in after-tax annual synergies from optimization of operations, capital and corporate structure. The transaction requires the approval of shareholders of both CF and OCI and is subject to receipt of certain regulatory approvals and other customary closing conditions.
As part of the agreement, Nassef Sawiris and other members of the Sawiris family, OCI’s founding and controlling stockholders, have agreed to vote their shares in favor of the transaction. They will together own approximately 15% of new CF’s outstanding shares and have entered into a shareholder’s agreement with new CF. The transaction is expected to close in 2016. Morgan Stanley & Co. and Goldman, Sachs & Co. are serving as financial advisers to CF Industries on the transaction. Zaoui & Co. is acting as lead financial adviser to OCI. Bank of America Merrill Lynch and JP Morgan are also providing financial advice to OCI. Allen & Company is advising Nassef Sawiris and the Sawiris family.
“This is a terrific opportunity for the shareholders of both companies, with mid- to high-teens cash flow accretion,” said Tony Will, president and CEO of CF Industries Holdings. “This is also a great outcome for US farmers as we have another supply point that will ensure our critical products are delivered reliably and in-time to meet our customers’ needs.”
“Combining our businesses with CF builds upon the company’s platform in Europe and expansive distribution network in North America, enhancing our collective scale and improving our ability to meet the needs of customers in the US and around the world,” said Nassef Sawiris, CEO of OCI NV. “As significant owners in the combined entity, our shareholders will benefit from the ongoing value creation of the business.”
By Natasha Alperowicz