It's well below freezing in Sioux City, Iowa today but a lot of portfolios in the hometown of fertilizer maker Terra Industries look scorching today after Deerfield, Ill.-based rival CF Industries made an unsolicited $2.1 billion all-stock bid for the company that could kick off a wave of consolidation in the agricultural chemicals sector. The $20-a-share bid is a 23 percent premium over Thursday's closing price, and Terra shares jumped accordingly today. CF says the deal could equal $100 million in cost savings over two years, and analysts say the deal could improve pricing power for the entire industry. Analysts react:
BMO Capital Markets: "At first glance, the share exchange ratio being offered does not seem unreasonable and is consistent with a recent high achieved in October 2008. The combined entity has the potential to have a sizeable position in the North American (nitrogen fertilizer) market."
Citigroup: "We view the proposed merger structure as a win-win transaction for shareholders of both companies due to the anticipated synergies, 100% stock deal that allows for continued participation by TRA shareholders, and welcomed consolidation in a globally fragmented market."