RiskMetrics backs CF; SandRidge seeks deals; other bids deemed unlikely for Silicon Storage

By Cristal Cody

Tupelo, Miss., Nov. 13 - CF Industries Holdings, Inc. on Friday secured a strategic move in the battle for control of Terra Industries Inc. with a recommendation from major proxy advisory firm RiskMetrics Group, Inc. in favor of its dissident slate of directors for Terra's board.

A day earlier, Agrium Inc. asked CF Industries' shareholders to support its own takeover offer for CF Industries, a Deerfield, Ill.-based nitrogen and phosphate fertilizer producer and distributor.

Meanwhile, although SandRidge Energy, Inc. dropped its $230 million bid to buy bankrupt oil driller Crusader Energy Group Inc., the gas and crude oil producer is expected to continue to look for deals, an analyst said Friday.

In other situations, Silicon Storage Technology, Inc. said Friday that it will be taken private for $2.10 a share by management and private investment firm Prophet Equity LP.

The deal contains a go-shop period that allows Silicon Storage to solicit other bids, but none are likely to materialize, an analyst told Prospect News.

On Wall Street, investors continued to push stocks up.

The Dow Jones Industrial Average added 73.00 points, or 0.72%, to close at 10,270.47.

The Standard & Poor's 500 index rose 6.24 points, or 0.57%, to 1,093.48, and the Nasdaq Composite index gained 18.86 points, or 0.88%, to end at 2,167.88.

CF Industries' chess game

CF Industries has three board nominees up for election at Terra's annual shareholders meeting on Nov. 20.

RiskMetrics said Friday in its report released to Prospect News that CF Industries has shown itself to be serious after continuing to bid for the Sioux City, Iowa, nitrogen producer since January 2009.

"Although Terra shareholders may in the aggregate believe they deserve more than the current offer on the table, we note that the Terra board has had almost an entire year to find an alternative transaction or negotiate an agreed deal at a higher price with CF," RiskMetrics said.

"If Terra shareholders do not vote for the CF nominees, Terra shareholders will end up in a similar position to CF shareholders who have been unable to act on Agrium's hostile bid (and ultimately may be unable to do so until next spring's annual meeting)," RiskMetrics said. "Of course, there is no guarantee a sale will result if Terra shareholders support the CF nominees."

Market observers consider the proxy advisory firm's recommendations key in determining how many institutional investors will vote.

The news sent Terra shares up $2.54, or 7.22%, to close Friday at $37.74.

Terra said in a statement on Friday that three of the nation's four leading proxy advisory firms, Glass, Lewis & Co., Proxy Governance, Inc. and Egan-Jones Proxy Services, have recommended shareholders vote for its nominees.

"We strongly believe that RiskMetrics reached the wrong conclusion," Terra said in the statement. "While RiskMetrics' decision may reflect its clients' short-term focus, we are confident that our shareholders understand the strong investment proposition they have in Terra. We believe that CF's nominees, if elected, would work to advance CF's interests and its inadequate proposal at the expense of Terra shareholders."

Terra has rejected CF Industries' buyout offer of $32.00 in cash and 0.1034 of a share for each Terra share.

In the interim, CF Industries has been fighting off its own hostile pursuer, Agrium.

Although Agrium cannot close its deal without CF Industries board approval, the Calgary, Alta.-based agricultural company on Thursday sent letters to CF Industries shareholders to encourage support of its offer.

Agrium's tender offer of $45.00 a share in cash and one share of Agrium for each CF Industries share expires on Wednesday.

CF Industries' stock fell 57 cents, or 0.70%, to close at $80.36 on Friday.

Agrium shares rose 16 cents, or 0.30%, to $53.00.

SandRidge not interested in auction

Oklahoma City-based SandRidge said late Thursday that it will no longer pursue the acquisition of Crusader because of additional bidders that would trigger an auction.

SandRidge made the cash-and-stock offer in September for Oklahoma City-based Crusader, which filed for Chapter 11 bankruptcy protection in March 2009.

SandRidge expects to receive a break-up fee of $7 million from Crusader.

Tom L. Ward, SandRidge's chief executive officer, said in a statement that the company is committed to a disciplined management style, but will "continue to evaluate other opportunities that are accretive to shareholder value."

Michael Schmitz, an analyst with Boenning & Scattergood, Inc., said Friday in a research note released to Prospect News that the withdrawal from the transaction is probably for the best.

"Overall, we view SD's decision to not increase its offer price for Crusader as a positive given SD's significant drilling inventory," said Schmitz, who has a $16.00 target price on the stock.

"However, SD indicated that it will continue to evaluate other potential acquisition opportunities that are accretive to shareholder value," he said. "SD previously indicated that its $750 million budget for 2010 included an unspecified amount for potential development on the Crusader properties, which would be allocated to other activity if it did not close Crusader."

SandRidge shares rose 37 cents, or 3.88%, to $9.91 on Friday.

Crusader shares closed flat at 1.5 cents.

Silicon Storage to solicit other bids

The buyout offer for Silicon Storage represents a 13% premium to the company's $1.86 closing stock price on Thursday. The total deal is valued at about $201.29 million, based on the company's 95.85 million outstanding shares.

Prophet Equity will acquire all outstanding shares of the Sunnyvale, Calif.-based digital memory products provider, except for shares held by chairman and CEO Bing Yeh and chief operating officer and board director Yaw Wen Hu. Those shares will be exchanged for shares of capital stock in the new privately held company.

Silicon Storage's board approved the agreement on the recommendation of a strategic committee of independent directors.

Although the agreement contains a go-shop provision that allows Silicon Storage to solicit proposals for the next 45 days, another bidder is not likely, one analyst told Prospect News on Friday.

"I'd be surprised given the company isn't that big and is a smaller portion of the overall memory market," the analyst said. "They might get interest from other strategic financial buyers, but if they haven't started due diligence yet, it's not likely to happen."

The deal to go private is probably the best for the company, at least to save public company costs.

"The company is perpetually losing money," the analyst said. "The trends of that business haven't been really good recently, and [the buyout firm] certainly has to have a good plan in place to get a good return on their money if they're buying at $2.10 a share. It's not a given to get a great return for the buyers."

The transaction, which is expected to close in the second quarter of 2010, is subject to regulatory clearances and approval by Silicon Storage shareholders.

Silicon Storage shares closed up 38 cents, or 20.43%, at $2.24 on Friday. The stock has traded from $1.30 to $3.12 over the past year.

Mentioned in this article:

Agrium Inc. NYSE: AGU

CF Industries Holdings, Inc. NYSE: CF

Crusader Energy Group Inc. Pink Sheets: CKGPRQ

SandRidge Energy, Inc. NYSE: SD

Silicon Storage Technology, Inc. Nasdaq: SSTI

Terra Industries Inc. NYSE: TRA

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