CF Industries Holdings, Inc. (NYSE:CF) and OCI N.V. (NYSE Euronext:OCI) have entered into a definitive agreement under which CF will combine with OCI’s European, North American and Global Distribution businesses in a transaction valued at approximately $8 billion, based on CF’s current share price, including the assumption of approximately $2 billion in net debt.
The transaction, which has been unanimously approved by the boards of directors of both companies, will create the world’s largest publicly traded nitrogen company. The transaction includes OCI’s nitrogen production facilities in Geleen, Netherlands, and Wever, Iowa, and the company’s interest in an ammonia and methanol complex in Beaumont, Texas, along with its global distribution business based in Dubai, United Arab Emirates.
The combined entity will also purchase a 45% interest plus an option to acquire the remaining interest in OCI’s Natgasoline project in Texas, which upon completion in 2017 will be one of the world’s largest methanol facilities. On a combined basis the company will have production capacity of approximately 12 million nitrogen-equivalent nutrient tons by mid-year 20161.
“This is a terrific opportunity for the shareholders of both companies, with mid- to high-teens cash flow accretion,” said Tony Will, president and chief executive officer, CF Industries Holdings, Inc.
“This is also a great outcome for U.S. farmers as we have another supply point that will ensure our critical products are delivered reliably and in-time to meet our customers’ needs,” said Wills.
“Combining our businesses with CF builds upon the company’s platform in Europe and expansive distribution network in North America, enhancing our collective scale and improving our ability to meet the needs of customers in the U.S. and around the world,” said Nassef Sawiris, chief executive officer, OCI N.V. “As significant owners in the combined entity, our shareholders will benefit from the ongoing value creation of the business.”
Compelling Strategic Rationale
- Leverages Distribution Network and Capabilities: Significant cost reduction and operational efficiencies by leveraging the most expansive distribution network in North America to reduce logistics costs. Process expertise and access to existing critical spare parts inventory pool reduce capital requirements with increased production.
- Powerful European System: Netherlands facility complements recent GrowHow acquisition to create significant synergies, sharing capabilities and enabling product flows that leverage existing distribution systems and customer relationships.
- Enhanced Existing Growth Pipeline: Expected to increase production capacity approximately 65% over next 24 months.
- Extends Global Platform and Reach: Dubai distribution business can optimize global product flows, maximizing returns.
- Establishes Presence in Methanol: Portfolio extension into fast-growing methanol market provides opportunity to leverage existing core operating capabilities in an adjacent business with attractive economics.
- Creates Unparalleled Value Growth Platform: Enhanced scale and financial strength positions company well to continue executing capital allocation priorities.
The transaction is expected to increase CF’s effective nitrogen capacity per share by 18 percent, as measured by the increase in the company’s nitrogen-equivalent production capacity per share, adjusted for effective tax rate impacts, from 25 to 30 tons per thousand shares2.
Under the terms of the agreement, CF will become a subsidiary of a new holding company domiciled in the United Kingdom, where CF is the largest fertilizer producer following its recent acquisition of GrowHow. OCI will contribute its European, North American and Global Distribution businesses to the new UK company in exchange for shares equal to a fixed 25.6 percent of new CF plus $700 million of consideration to be paid in a mix of cash or shares at new CF’s discretion, of which $550 million is assumed to be paid in shares.
Additionally, the new CF will have an agreement to purchase a 45 percent interest in Natgasoline for approximately $500 million in cash. Upon completion of the transaction and based on the current share price, CF shareholders would own approximately 72.3 percent of the new company and OCI would own approximately 27.7 percent.
Most of OCI’s shares will be distributed to its shareholders. Final consideration mix (cash and new CF stock) and resulting ownership split will be dependent on the CF share price at the time of closing. The new corporation will operate under the name CF and be led by existing CF management.
The initial board of the new corporation will have 10 directors, consisting of eight of CF’s current directors, as well as Greg Heckman, former CEO of The Gavilon Group, LLC and current OCI N.V. board member, and Alan Heuberger, senior portfolio manager for Bill & Melinda Gates Investments (BMGI). The combined company will maintain its principal executive offices in Deerfield, Illinois and will be listed on the New York Stock Exchange under the ticker symbol CF.
CF expects to achieve approximately $500 million in after-tax annual run-rate synergies from optimization of operations, capital and corporate structure. Including all synergies, the transaction is expected to deliver attractive, mid-to-high teens accretion in cash flow to CF shareholders versus a stand-alone base case.
The transaction requires the approval of shareholders of both CF and OCI and is subject to receipt of certain regulatory approvals and other customary closing conditions. As part of the agreement, Nassef Sawiris and other members of the Sawiris family, OCI’s founding and controlling stockholders, have agreed to vote their shares in favor of the transaction. They will together own approximately 15% of new CF’s outstanding shares and have entered into a shareholder’s agreement with new CF. The transaction is expected to close in 2016.
Morgan Stanley & Co. LLC and Goldman, Sachs & Co. are serving as financial advisors to CF Industries on the transaction. Skadden, Arps, Slate, Meagher & Flom LLP is acting as its legal advisor. Zaoui & Co. is acting as lead financial advisor to OCI. Bank of America Merrill Lynch and JP Morgan are also providing financial advice to OCI. Allen & Company is advising Nassef Sawiris and the Sawiris family. Cleary Gottlieb Steen & Hamilton LLP and Allen & Overy LLP are acting as legal advisors to OCI.