(Reuters) – CF Industries ended merger talks with Norway’s Yara International that would have created a $24.5 billion fertilizer producer, leaving Yara with nothing to show for a short-lived courtship that cost it two chief executives.
Chicago-based CF and Yara failed to agree the terms of a “merger of equals” to create a rival to market leader, Canada’s Potash Corp.
CF concluded that an all-stock deal did not adequately reflect the value of its near-term capacity expansions, said a person familiar with the matter after the breakdown of talks that were announced less than four weeks ago.
CF believed that a deal would require a share exchange ratio that exceeded the levels discussed when the two companies first started negotiations and would have to give it a meaningfully higher ownership than 50 percent, said the person, asking not to be named because the matter is not public.
Yara is likely to have to put large merger activity to one side as it repairs the damage after firing CEO Joergen Ole Haslestad this month who it deemed unsuitable to lead the talks with CF.
Svein Richard Brandtzaeg, who had been due to succeed Haslestad next February, changed his mind and decided to stay at aluminium producer Norsk Hydro three days after the merger talks were announced.
“It (a merger) is not on the table for the next six months. They need a new CEO,” said analyst Per Haagensen at RS Platou Markets, who has a “Neutral” recommendation on the stock.
“For CF, the story may not be over, there could be other candidates. The name Koch Industries keeps popping up.”
Koch Industries is one of the largest privately owned companies in the United States and has a fertiliser unit among its businesses.
DIFFERENT OPINIONS
A successful deal would have given Yara, the world’s biggest nitrate fertilizer maker, major production units in the United States, where costs are lower due to cheap gas.
CF would have gained a global footprint through Yara’s presence in 150 countries with production assets and a well established distribution network.
However, acting Yara CEO Torgeir Kvidal said it had proven more difficult than anticipated to unite the two companies.
“We spent a lot of time discussing our firms’ strategies and how they could be combined,” he told Reuters. “There were still a lot of differences.”
“We also saw that we had different understandings of how we see different markets in different regions and different products.”
Yara shares were up 1.36 percent at 297.5 crowns at 1050 GMT, having closed at 312.9 crowns before the talks were announced last month. Shares of CF, which closed at $253.85 on the New York Stock Exchange on Thursday, had fallen about 4 percent in after-market trading following the announcement.
Analysts said the failure of the talks, though disappointing for Yara, was perhaps inevitable.
“CF is a completely different company with a different culture,” said Daniel Johansson, an analyst at Oslo-based Fondsfinans.
“Yara is state-owned, fairly conservative with its dividend policy and has a very long-term strategy,” added Johansson, who has a “Neutral” recommendation on the stock.
Acting CEO Kvidal played down suggestions that the Norwegian state’s ownership of a large stake in Yara played a part in the breakdown of talks.
“CF knew what the state had said about ownership. This was not one of the main points of our talks, this was something that was going to be addressed at a later stage,” he said.
The Norwegian government, which owns a 36.2 percent stake in Yara, said in June it would not cut its stake below 34 percent. Any change in that stance would likely require approval in parliament, which could be fraught as the government does not have a majority.
The companies had not revealed any terms of a potential merger. The proposed deal would have seen CF Chief Executive Tony Will lead the combined company as chief executive with Yara’s chairman of the board, Leif Teksum, to serve as chairman, the person familiar with the matter said.
Morgan Stanley and Goldman Sachs advised CF on the merger talks, while Yara was advised by Citi and Norwegian brokerage ABG Sundal Collier.
By Soyoung Kim and Joachim Dagenborg (Additional reporting by Gwladys Fouche and Balazs Koranyi in Oslo, and Kanika Sikka in Bangalore; editing by G Crosse and Keith Weir)
