CF investors question lack of vote for Terra bid; Pepsi may face strict antitrust review

By Cristal Cody

Tupelo, Miss., Aug. 5 - While CF Industries Holdings, Inc. sweetened its takeover offer for Terra Industries Inc. on Wednesday, several investors voiced concern with the company's continued rejection of its own $4 billion cash-and-stock buyout offer made by Agrium Inc. and the lack of a shareholder vote on the proposed Terra deal.

In other situations, a market source said Wednesday that the Federal Trade Commission could take a hard look at PepsiCo, Inc.'s $7.80 billion buyout of its two largest bottlers, Pepsi Bottling Group Inc. and PepsiAmericas Inc.

Meanwhile, stocks edged lower on Wednesday.

The Dow Jones Industrial Average dipped 39.22 points, or 0.42%, to close at 9,280.97.

The Standard & Poor's 500 index fell 2.93 points, or 0.29%, to 1,002.72, and the Nasdaq Composite index slipped 18.26 points, or 0.91%, to end at 1,993.05.

Fertilizer battle heats up

CF said Wednesday it will offer 0.465 shares of CF for each Terra share in a deal valued at $3.83 billion, up from a proposed exchange ratio of between 0.4129 and 0.4539 shares valued at about $2.20 billion.

Deerfield, Ill.-based CF also would return at least $1 billion of cash to stockholders of the combined company after the transaction closes and would distribute about 5 million contingent future shares to CF stockholders that could be converted into common stock if shares trade at more than $115.00 each.

Stephen R. Wilson, chairman, president and chief executive officer of CF, said the company's proposal for Terra is expected to clear regulatory reviews after Wednesday.

As of Tuesday, 9,144,017 shares of Terra had been tendered in CF's exchange offer.

In a conference call with analysts and investors on Wednesday, Wilson said the offer is a "compelling opportunity for both companies and shareholders."

Several investors expressed concern with the attempt by CF's board to have no shareholder vote on the deal.

"How come in the first place we tried to get around a shareholder vote?" Tony Reiner of Dominick & Dominick LLC's merger arbitrage/event-driven team asked on the call.

"At what point will the board stop putting its opinion ahead of my opinion?" Drew Figdor of Tiedemann Investment Group asked Wilson on the call.

Wilson said the company believes it would gain shareholder approval, but that it offered the addition of the contingent future shares "as a way to manage around that concern" by Terra that CF could not gain shareholder support.

Sioux City, Iowa-based Terra said in a statement on Wednesday that the board will consider CF's latest proposal before the end of the month.

Also on Wednesday, Calgary, Alta.-based Agrium announced that second-quarter net income fell to $370 million, or $2.35 a share, from $636 million, or $4.00 a share.

Mike Wilson, Agrium's president and CEO, said in a statement that the agricultural and fertilizer company remains committed to acquiring CF. Agrium's tender offer for CF shares expires Aug. 19.

"We will continue to press CF to execute a mutually beneficial merger agreement despite the fact that CF has so far ignored a clear mandate from their stockholders to conclude a transaction with us," Wilson said. "Our offer remains far superior to any alternative articulated by CF, including remaining independent or paying a premium for Terra."

CF's stock closed up $2.73, or 3.41%, at $82.74, while Terra shares ended up $1.59, or 5.51%, at $30.44 on Wednesday.

Agrium's stock picked up $1.57, or 3.33%, to close at $48.65.

Strict review likely for Pepsi

A market source said Wednesday that gross trading spreads of Pepsi Bottling and PepsiAmericas shares remains tight on expectations that shareholders will approve the deal despite the buyouts' long timeframe.

PepsiCo expects to close its $7.80 billion buyout of the bottlers, announced on Tuesday, in December or January.

The Purchase, N.Y.-based soft drink maker said it will pay $36.50 per share for Pepsi Bottling and $28.50 per share for PepsiAmericas.

Pepsi first offered $29.50 per share for Somers, N.Y.-based Pepsi Bottling and $23.27 per share for Minneapolis-based PepsiAmericas.

However, it's not a done deal yet.

"We regard the merger agreements as weak, and there are no specific performance clauses," the source said. "Given that the transaction could be subject to close scrutiny by the FTC, we believe that the widening of the spreads on negative regulatory news is possible. The FTC's track record suggests that they are fairly careful when looking at bottler consolidations, mainly driven by the high concentration in the soft drinks industry."

PepsiCo currently owns 33.00% of Pepsi Bottling shares and 43.00% of PepsiAmericas shares.

Shares of Pepsi Bottling fell 37 cents or 1.01%, to close at $36.12, while PepsiAmericas' stock lost 25 cents, or 0.88%, to $28.25.

PepsiCo shares closed at $58.39, down 67 cents, or 1.13%, on Wednesday.

Mentioned in this article:

Agrium Inc. NYSE: AGU

CF Industries Holdings, Inc. NYSE: CF

PepsiAmericas Inc. NYSE: PAS

Pepsi Bottling Group Inc. NYSE: PBG

PepsiCo, Inc. NYSE: PEP

Terra Industries Inc. NYSE: TRA

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