Cf Industries Holdings, Inc. · NYSE:CF
Cf Industries — Merger or Acquisition (June 2009)
54 slides from Cf Industries's merger presentation, Jun 8, 2009
Slide 1: Filed by Agrium Inc. Pursuant to Rule 425
Filed by Agrium Inc. (Commission File No. 333-157966) Pursuant to Rule 425 under the Securities Act of 1933 Subject Company: CF Industries Holdings, Inc.
Slide 2: Agrium: Growing Across the Value Chain
Fundamentals of Growth Agrium: Growing Across the Value Chain June 2009
Slide 3: Important Information
Important Information This presentation does not constitute an offer to exchange, or a solicitation of an offer to exchange, common stock of CF Industries Holdings, Inc. (“CF”), nor is it a substitute for the Tender Offer Statement on Schedule TO or the Prospectus/Offer to Exchange included in the R
Slide 4: Forward-Looking Statements
Forward-Looking Statements Certain statements and other information included in this presentation constitute “forward-looking information” within the meaning of applicable Canadian securities legislation or constitute “forward-looking statements” (together, “forward-looking statements”). All stateme
Slide 5: Agenda
Agenda Introduction A Question of Governance Stockholder Observations Standalone Value of CF Premiums Analysis Transaction Valuation Conclusion Appendix Fundamentals of Growth 4
Slide 6: Introduction
Introduction A Question of Governance Stockholder Observations Standalone Value of CF Premiums Analysis Transaction Valuation Conclusion Appendix Fundamentals of Growth 5
Slide 7: Summary of Revised Offer for CF
Summary of Revised Offer for CF Offer: Agrium to combine with CF in a cash and stock deal • $40.00 in cash and 1 Agrium share (total consideration of $89.22 as at May 29) • Aggregate consideration of $2.0 billion cash and 50.2 million shares Consideration: • CF stockholders may elect mixed considera
Slide 8: Evolution of Situation
Evolution of Situation $95 May 11 Current Feb 25 Mar 27 Agrium increases proposal for CF Agrium announces Agrium increases proposal ($40.00 + 1 share) Proposal(1): acquisition proposal for CF for CF ($31.70 + 1 share) ($35.00 + 1 share) with election mechanic $89.22 with election mechanic with elect
Slide 9: Summary of Key Arguments
Summary of Key Arguments • Agrium is serious about acquiring CF and CF refuses to engage – Several overtures made privately and publicly, each summarily rebuffed – Significant costs incurred – Willing to sign fully financed and binding merger agreement immediately • CF board is precluding CF stockho
Slide 10: A Question of Governance
Introduction A Question of Governance Stockholder Observations Standalone Value of CF Premiums Analysis Transaction Valuation Conclusion Appendix Fundamentals of Growth 9
Slide 11: Agrium is Serious About Acquiring CF
Agrium is Serious About Acquiring CF • Three recent private approaches made to CF, each rebuffed – Agrium advisors contacted CF’s advisors on May 7th to move forward on a friendly basis: response received that “it didn’t make sense to meet” – Agrium CEO contacted CF CEO on May 8th to discuss meeting
Slide 12: CF Board Is Precluding CF Stockholders From Determining Outcome
CF Board Is Precluding CF Stockholders From Determining Outcome • CF currently has in place an extensive list of anti-takeover defenses which are counter to RiskMetrics’ guidelines – Poison pill – Classified board of directors – Stockholders unable to call a special meeting – No stockholder action b
Slide 13: CF Board Should Come to the Table
CF Board Should Come to the Table • Agrium wants to engage and is willing to listen – We acknowledge CF’s operational capabilities and achievements – Current proposal is the best price based on what Agrium knows – We welcome the opportunity to engage and debate directly on value if CF provides new i
Slide 14: Stockholder Observations
Introduction A Question of Governance Stockholder Observations Standalone Value of CF Premiums Analysis Transaction Valuation Conclusion Appendix Fundamentals of Growth 13
Slide 15: Significant Turnover in CF's Stockholder Base by Long-Term Investors
Significant Turnover in CF’s Stockholder Base by Long-Term Investors • Long-term CF stockholders are sending a clear message to CF about their perspectives on fundamental value • Since January 1, 2009, 13 of CF’s top 15 stockholders as at December 31, 2008 reduced their positions significantly – Exc
Slide 16: Long-term CF Stockholders Selling Below AGU Offer Price
Long-term CF Stockholders Selling Below AGU Offer Price Top 15 Stockholder Detail Position as at Investor Style Dec 31 Mar 31 % Chg Position 1 BARCLAYS BANK PLC Index 3,266,198 2,831,879 (13.3)% 2 STATE STR CORPORATION Index 3,239,344 2,319,261 (28.4)% 3 VANGUARD GROUP, INC. Index 2,731,690 2,359,29
Slide 17: Standalone Value of CF
Introduction A Question of Governance Stockholder Observations Standalone Value of CF Premiums Analysis Transaction Valuation Conclusion Appendix Fundamentals of Growth 16
Slide 18: Near-term Fertilizer Outlook
Near-term Fertilizer Outlook • General downward pressure on fertilizer prices from delayed planting season and reduced application rates leading to reduced fertilizer purchases • Nitrogen and phosphate prices have declined approximately 21% and 25%, respectively(1), since the day before our offer (F
Slide 19: Current Nutrient Pricing Above Historical Averages
Current Nutrient Pricing Above Historical Averages • CF’s reliance on short-lived peak 2008 nitrogen and phosphate prices for current and future valuations is unrealistic and irrelevant • Current nitrogen and phosphate prices are NOT at the bottom of the cycle – Industry forecasts show nutrient pric
Slide 20: Moderate Margins Anticipated for CF's Facilities
Moderate Margins Anticipated for CF’s Facilities • Expected operating margins for nitrogen and phosphate facilities similar to CF’s are significantly lower than peak 2008 levels Illustrative Annual Operating Profit (1,2) $500 ’00-’07 Avg. 2008 Current Nitrogen (1) $25 $242 $104 Phosphate (2) $49 $51
Slide 21: CF Earnings Fundamentals vs. Share Price Performance
CF Earnings Fundamentals vs. Share Price Performance • In 2007, earnings outlook for 2008 was strong, given the then-positive pricing outlook • The current weak pricing outlook does not support CF’s assertions of near- term EBITDA in line with 2008 Jun 17, 2008: $169.62 $1500 $180 1,000 May 29: $77.
Slide 22: Analyst Commentary
Analyst Commentary • “Compared to other nitrogen producers such as Yara, CF’s stock price has appreciated largely as a result of Agrium’s bid rather than an improvement in the underlying fundamentals of the Inour nitrogen/phosphate fertilizer industry. In our view, view, it would be prudent for inve
Slide 23: Sum-of-the-Parts Assessment By Nutrient
Sum-of-the-Parts Assessment By Nutrient • Analysts apply the One-Year Price Target EV / 2010E EBITDA Multiple highest multiple to Used for Sum-of-the-Parts Valuation Potash and lowest Date Research Firm Potash Phosphate Nitrogen 19-May-09 UBS 7.5x 6.0x 4.5x to Nitrogen 13-May-09 Merrill Lynch 6.0x 5
Slide 24: Analysis of CF's Working Capital and Cash Balances
Analysis of CF’s Working Capital and Cash Balances • CF’s increase in Q1 cash was predictable and is not “new value” $ 1,200 Cash & Short Term Investments (1) Working Capital Q3'08: $1,152.2 900 $ 839.0 Q4’08 to Q1'09: Cash tied up in Balance sheet cash working capital up $214 million, or $4.26 per
Slide 25: CF's Estimation of Unaffected Stock Price
CF’s Estimation of Unaffected Stock Price • Analysis presented by CF in recent presentations presumes that CF’s unaffected stock price should reflect the full amount of the sector move since February 24 • Agrium believes the entire sector has been influenced by the “echo” impact of multiple M&A bids
Slide 26: CF's Estimation of Unaffected Stock Price Uses a Biased Start Date
CF’s Estimation of Unaffected Stock Price Uses a Biased Start Date • Using reference dates from December 31, 2008 to February 24, 2009, 53% of results from Agrium’s methodology point to an unaffected price in the $62.50 to $67.50 range • Using CF’s methodology – which Agrium disputes – 58% of result
Slide 27: Agrium Methodology Yields Relatively Consistent Results for Unaffected Price
Agrium Methodology Yields Relatively Consistent Results for “Unaffected” Price • Applying peer stock price or enterprise value growth to CF operating asset or enterprise values results in an unaffected CF stock price around $65 across individual peers Implied Agrium Offer Value (May 29 Closing): $ 8
Slide 28: CF Methodology Did Not Hold True in Predicting Price Heading Up to Jan 15
CF Methodology Did Not Hold True in Predicting Price Heading Up to Jan 15 • CF’s methodology predicts a range of prices from $42.50 to $65.00 – This methodology simply isn’t particularly instructive 79% of results under CF methodology higher than Jan 15 observed 35 19% 19% 20% 30 15% 16% 15% 25 11%
Slide 29: Estimated CF Unaffected Stock Price of Approximately $65.00
Estimated CF Unaffected Stock Price of Approximately $65.00 CF Unaffected Stock Price • CF had $12.38 per share in net cash on hand at December 31, and a further $4.79 38 % invested in working capital versus average $ 65.15 Implied Unaffected levels CF Stock Price Performance • For simplicity our il
Slide 30: Premiums Analysis
Introduction A Question of Governance Stockholder Observations Standalone Value of CF Premiums Analysis Transaction Valuation Conclusion Appendix Fundamentals of Growth 29
Slide 31: 50% Premium to Cash-Adjusted CF Unaffected Stock Price
50% Premium to Cash-Adjusted CF Unaffected Stock Price $ 89.22 1 37 % Implied Stock Price Premium $ 16.64 $ 65.15 $ 16.64 50 % Implied Cash- Adjusted $ 72.58 Premium Today $ 48.51 Unaffected CF Stock Price Agrium Offer Implied Operating Asset Value Per Share CF Net Cash Per Fully Diluted Share (1) B
Slide 32: CF Stockholders Benefit from Higher Base Received through Premium
CF Stockholders Benefit from Higher Base Received through Premium • A cyclical upward move of 35% from the Agrium Offer at Illustrative 35% Cyclical Upward Move current Agrium offer would achieve a future CF stock price of $120 assuming $ 120.45 100% stock election (or reinvestment of $ 89.22 35 % c
Slide 33: CF's $40 Cash Capacity Highlights Magnitude of Agrium Premium
CF’s Statement that it has $40 “Cash Capacity” per Share Highlights Magnitude of Agrium Premium • Agrium is largely indifferent to acquiring a levered or unlevered CF – Assumes no incremental transaction friction costs • Should CF decide to raise debt and payout $40/share special dividend, we would
Slide 34: Any Increases by CF to its Bid for Terra Should Result in Lower CF Stock Price
Any Increases by CF to its Bid for Terra Should Result in Lower CF Stock Price Estimated Implied Value of Current Implications of a 10% Bump CF / TRA Bid (0.4539x) Implied Exchange Ratio of 0.4993x $2.96 per share in Cash Pro Forma Unaffected CF Stock Price: $63.25 Pro Forma Unaffected CF Stock Pric
Slide 35: Average Daily Stock Price Premiums
Average Daily Stock Price Premiums • Assuming all stock election or reinvestment of cash, Agrium’s offer is a significant premium to CF’s historical stock price 70% Jan 15 CF Announces Proposal for Terra 60% Current 50% Premium to CF Daily offer premium assuming $40 in cash had been invested in Unaf
Slide 36: Offer is at an Enterprise Value Premium to Precedent Transactions
Offer is at an Enterprise Value Premium to Precedent Transactions • When considering precedent transaction premiums, premiums to enterprise value are a more appropriate methodology than equity value, as high leverage distorts the premium being paid for the business Average 1-Day Prior Enterprise Val
Slide 37: Selected Precedent Chemical and Fertilizer Transactions – Equity Premiums
Selected Precedent Chemical and Fertilizer Transactions – Equity Premiums Chemicals Fertilizers (13 deals) (4 deals (1)) Current Offer (2) 100% 89% 80% 61% 60% 52% 53% 50% 46% 40% 1-Day Avg. 34% 34% 31% 30% 34% 25% 1-Day Avg. 24% 1-Mo. Avg. 21% 21% 25% 18% 31% 20% 17% 17% 17% 1-Mo. Avg. 14% 9% 10% 2
Slide 38: Unsolicited Equity Premiums Analysis
Unsolicited Equity Premiums Analysis U.S. Targets – Not U.S. Targets – Announced / Completed Completed (46 deals) (70 deals) Current Offer (1) CF Jan 15 share price 100% 89% Initial Bid Premium(2) Successful / Current Initial Bid Premium(2) Bid Premium(2) 80% CF Feb 24 share price CF cash- adjusted
Slide 39: Significant Premium to CF Stockholders Across Multiple Metrics
Significant Premium to CF Stockholders Across Multiple Metrics Premiums(1) Cash-Adjusted Premiums (1,2) EV Premiums (3) $89.22 $72.58 $3,596 Current ($89.22, less Current $16.64 net offer 89% 61% 37% cash per CF 137% 86% 50% offer 142% 89% 51% share) $65.15 $55.58 $48.51 $2,388 $47.23 $38.94 $1,908
Slide 40: Transaction Valuation
Introduction A Question of Governance Stockholder Observations Standalone Value of CF Premiums Analysis Transaction Valuation Conclusion Appendix Fundamentals of Growth 39
Slide 41: CF's Consensus EBITDA
CF’s “Consensus” EBITDA • It is important to note CF does not ‘own’ 100% of its consolidated EBITDA – CF’s joint venture partner owns 34% minority interest in Canadian Fertilizer Limited – CF also has equity in earnings from its interest in unconsolidated affiliate KEYTRADE AG • Equity research anal
Slide 42: Adjusted EBITDA Multiples
Adjusted EBITDA Multiples • Implied valuation multiples must be adjusted to reflect leakage of minority interest • Agrium’s offer for CF represents EV / ‘Owned’ EBITDA transaction multiples of 5.8x and 6.1x for 2009E and 2010E, respectively LTM EBITDA 2009E Street EBITDA 2010E Street EBITDA $1200 Es
Slide 43: Compelling Valuation
Compelling Valuation • Agrium’s revised offer provides a 27% greater EBITDA multiple for CF than CF is offering for Terra (1) Agrium / CF vs. CF / Terra – 6.1x vs. 4.8x 2010E EBITDA(1) using CF’s unaffected share price adjusted to $89.22 $29.57 exclude the effects of Agrium’s offer – Agrium's revise
Slide 44: Chemical & Fertilizer Peer EBITDA Growth
Chemical & Fertilizer Peer EBITDA Growth • CF and Terra forecast 2009E-2010E growth is significantly lower than peers C2009E – C2010E EBITDA Growth per Bloomberg Consensus (1) Peer Average: +38% $6,000 57% 19% 67% 27% 32% 17% 50% (10%) (7%) (5%) (4%) 5,025 5,000 4,078 4,000 3,418 3,203 3,000 2,656 2
Slide 45: Agrium Multiple Advantage over CF
Agrium Multiple Advantage over CF • Agrium has traded over 3 multiples of LTM EBITDA higher (or 59%) than CF, since CF’s IPO (1) – Superior diversification across products, businesses and regions • Nutrient composition needs to be accounted for in fertilizer valuations 8.0x 6.0x Average EV / LTM EBI
Slide 46: Margin and ROE Comparison
Margin and ROE Comparison • Compared to CF, Agrium benefits from higher and less volatile margins • Agrium provides shareholders stable returns through the commodity cycle, in excess of CF’s returns EBIT Margins (1) ROE (2) 60% 120% Agrium Agrium Agrium Agrium acquires acquires 50% acquires 100% acq
Slide 47: Precedent Nitrogen Transaction Multiples
Precedent Nitrogen Transaction Multiples • Valuation multiples vary widely due to volatile natural gas prices relative to nitrogen fertilizer prices – Acquisitions are based on forward margin expectations, not trailing margins • LTM trading multiples are at recent lows due to record nitrogen sector
Slide 48: Significant Synergies from Combination of Agrium and CF
Significant Synergies from Combination of Agrium and CF • Anticipate annual synergies of approximately $150 million from Agrium/CF combination, phased in over three years Source Description Sales, Marketing and Consolidation of the sales, marketing and distribution systems by Distribution • utilizin
Slide 49: Conclusion
Introduction A Question of Governance Stockholder Observations Standalone Value of CF Premiums Analysis Transaction Valuation Conclusion Appendix Fundamentals of Growth 48
Slide 50: Summary of Key Arguments
Summary of Key Arguments • Agrium is serious about acquiring CF and CF refuses to engage – Several overtures made privately and publicly, each summarily rebuffed – Significant costs incurred – Willing to sign fully financed and binding merger agreement immediately • CF board is precluding CF stockho
Slide 51: Appendix
Introduction A Question of Governance Stockholder Observations Standalone Value of CF Premiums Analysis Transaction Valuation Conclusion Appendix Fundamentals of Growth 50
Slide 52: Timeline of Events
Timeline of Events Week CF / Terra Agrium / CF • CF announces proposal to acquire Terra (1/15) Jan 11 – 100% stock transaction, $20.00/share – Transaction subject to CF stockholder vote under NYSE rules • CF files exchange offer to acquire Terra (2/23) • Agrium announces proposal to acquire CF (2/25
Slide 53: Wide Range of Outcomes Under CF Methodology for Unaffected Price
Wide Range of Outcomes Under CF Methodology for “Unaffected” Price • Using CF’s methodology and reference dates from December 31, 2008 to February 24, 2009 – which Agrium disputes – a wide range of results are achieved CF – Analysis shown before CF’s addition of $3.00 “short interest” per share Refe
Slide 54: Wide Range of Outcomes from Agrium Methodology as Well
Wide Range of Outcomes from Agrium Methodology as Well • However, Agrium’s reference date provides outcome within the reference range, versus being an outlier $85 80 Feb 24 Max: $74.55 Range: $60 - $75 75 Agrium reference 70 Jan 22 date: $65.15 Min: $60.21 65 60 55 50 45 40 31-Dec-08 07-Jan-09 14-Ja
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