March 12, 2010 / 9:56 AM / 7 years ago

UPDATE 3-Norway's Yara exits Terra battle, shares rise

* Says Terra a perfect fit but declines to improve offer

* CEO sees other growth opportunities worldwide

* Yara shares rise 5.6 percent after bidding war avoided

* Analyst sees Yara running out of North American targets

(Adds analyst, share price, recasts)

By Richard Solem and Joergen Frich

OSLO, March 12 (Reuters) - Norway's Yara International ASA (YAR.OL) shied away from raising its offer for Terra Industries Inc TRA.N to top a rival bid, boosting its shares but scuppering its U.S. expansion plans.

"Terra would be a perfect fit to Yara and attractive at our proposed valuation, but we will not increase our offer that was first accepted by the Terra board," Chief Executive Joergen Ole Haslestad said in a statement.

Shares in Yara rose 5.6 percent by 0900 GMT, with Yara's management seen keeping its cool to preserve shareholder value in avoiding an overseas M&A battle.

Yara had agreed last month to buy Terra for $4.1 billion to create the world's biggest mineral fertiliser producer and boost its U.S. presence, as rivals join forces to gain size and reach.

But Terra said on Wednesday it planned to accept a "superior" $4.68 billion takeover bid from rival CF Industries Holdings Inc (CF.N) unless Yara boosts its competing offer.

"The U.S. remains an attractive market for us and we will continue to search for opportunities to grow our business in the region," Haslestad said. "We remain the global leader in the fertilizer industry, and there will be more opportunities around the world to grow our business further."

VALUE CREATION

Yara spokesman Asle Skredderberget said: "We have said ... that we do not want to participate in a bidding war ... We want to grow in a way that creates value for our shareholders."

Analysts had expected Yara to give up on Terra after CF's bid. [ID:nLDE62A101]

CF had come a step nearer closing its deal with Terra when Canadian fertilizer maker Agrium Inc (AGU.TO) said on Thursday it was abandoning its $5.4 billion bid for CF Industries, ending a drawn out takeover battle. [ID:nN11199837]

These and other M&A battles have kept the fertilizer sector in investors' sights, despite a sharp fall in prices last year as the global economic crisis hit.

Yara's withdrawal opens the way for CF to tie up the Terra deal after a nearly year-long takeover saga, though the so-called "fertilizer wars" have seen many twists. Yet there were questions about what Yara's next move might be.

"Strictly speaking there are no other acquisition candidates there. We know that they would want Potash Corp (POT.N), but Potash Corp is way too big for them," said analyst Samir Bendriss at Pareto Securities.

Yara will be entitled to a $123 million break-up fee if Terra chooses to terminate the merger agreement, including if it has received a superior proposal, Yara said.

Analysts and producers expect a rebound in demand this year as farmers replenish their soil nutrient levels, stoking M&A.

Analyst Hans-Erik Jacobsen at First Securities said fear of an increased bid had put pressure on Yara's shares. "There are plenty of other opportunities for Yara. This industry needs consolidation." (Editing by David Holmes and Hans Peters)

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