November 2, 2009 / 8:53 PM / 10 years ago

UPDATE 1-CF's increased Terra bid may pressure Agrium

* CF bid could spur Agrium to boost before Terra meeting

* Terra shares up 6 pct in afternoon trading

By Michael Erman and Ernest Scheyder

NEW YORK, Nov 2 (Reuters) - Fertilizer maker CF Industries Holdings Inc’s (CF.N) new bid for Terra Industries Inc TRA.N should spur CF’s suitor Agrium Inc AGU.TO to raise its own offer before Terra’s annual meeting later this month.

Analysts and investors said they expect an increased Agrium bid soon, as the company attempts to influence voting at Terra’s meeting on Nov. 20, where CF has placed up for election a slate of three directors.

CF, which has been pursuing Terra since January, raised its bid on Sunday and changed the structure of its offer to mostly cash. But CF is itself fending off a hostile bid from Canada’s Agrium, and the new bid raises the stakes for both possible deals.

“We expect Agrium to raise its bid one more time,” Sterne Agee analyst Mark Connelly said in a research note.

Still, Connelly cautioned not to expect too much of an increase from Agrium, whose current cash and stock offer is trading at a roughly 5 percent premium to CF’s shares.

“Agrium has been disciplined in its bidding so far, and we expect that to continue,” he said.

Agrium declined to comment.

Fertilizer is an essential ingredient for crop growth, a fact that has fueled M&A interest during the past year.

As world populations rise, and the amount of arable land remains relatively stable, farmers are looking to produce more food.

Additionally, the advent of genetically modified crops has created a steep demand for fertilizer, as the new seeds require even more nourishment to grow.

CF only raised its bid a bit on Sunday, but removed what had been seen as a major obstacle for a deal — the need for approval by CF’s shareholders — by making its offer mostly in cash.

Arbitrage investors said they were taking CF’s latest bid for Terra more seriously than its previous ones because it removes the uncertainty that would have been created by putting the offer in front of CF shareholders.

On Sunday, CF bid $32 in cash — including a $7.50 special dividend that Terra plans to pay — and 0.1034 of a share of CF common stock for each Terra share. That comes out to roughly $40.61, and is about 5 percent higher that CF’s previous all stock bid of 0.465 CF shares for every Terra share.

“This certainly puts a little more pressure on Terra to at least come to the table,” said Dahlman Rose analyst Charles Neivert.

Terra shares were up $1.89, or 5.95 percent, to $33.66 on the New York Stock Exchange in afternoon trading. (Reporting by Michael Erman, Ernest Scheyder, editing by Maureen Bavdek, Leslie Gevirtz)

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