Shares in major Norwegian fertilizer producer Yara International ASA soared in price on Tuesday after the company confirmed it was in merger discussions with the US fertilizer firm CF Industries. Analysts called the merger “a good match,” while speculation flew over whether Yara would lose its home base in Oslo, its new incoming Norwegian chief executive, or both.
Norwegian politicians strive to keep the country’s large companies based in Norway, but in this case it may be an expensive proposition. The state currently holds 36.2 percent of Yara’s stock, but that stake stands to be diluted considerably if a merger with CF Industries goes through. Norwegian Broadcasting (NRK) reported that in order for the state to maintain so-called “negative control” of the merged company, it would need to buy up many shares at a cost of billions of kroner.
“We are aware there has been dialogue between the two companies, but stress that we haven’t taken a position (on a prospective merger),” Trond Viken, spokesman for the government ministry for business and trade, told NRK.
CF Industries is based in Deerfield, Illinois, just outside of Chicago. Like Yara, it’s fairly new as a stock-listed company, going public in 2005 while Yara was spun off from Norwegian industrial concern Norsk Hydro as a separately publicly traded firm in 2004. It’s smaller than Yara, with 2,800 employees mostly in the US compared to Yara’s nearly 10,000 worldwide. The two companies are valued rather closely, though, with CF at the equivalent of NOK 78 billion and Yara at NOK 94 billion, according to DN. Yara’s annual revenues are more than double CF’s, but CF is more profitable.
Yara is emerging from a major bribery scandal that ultimately resulted in the upcoming replacement of its chief executive, Jørgen Ole Haslestad, who’ll need to testify at the looming trials of Yara’s former executives who have been indicted for corruption. Norsk Hydro’s chief executive, Svein Richard Brandtzæg, is due to take over as Yara’s boss in February. If Yara’s biggest shareholder (the state) demands as expected for the merged company’s headquarters to be in Oslo, it may need to compromise, however, on the issue of whether the combined firm would also get a Norwegian CEO. The merger, billed as a “merger of equals,” thus may lead to CF’s CEO or another American taking over.
Analysts positive, investors drive up share prices
As speculation flew, officials at both Yara and CF stressed that the merger talks were “at an early stage, and there can be no assurances that these discussions will result in any transaction.” Analysts, though, were already positive, as were investors who drove Yara’s share price by as much as 7-9 percent during the course of the day.
“Yara has broad distribution on a worldwide basis, but lacks production capacity at low cost levels,” Per Haagensen, an analyst at RS Platou Markets told the website for Dagens Næringsliv, dn.no. “CF doesn’t have the same distribution network, but produces fertilizer much more cheaply (than Yara).”
Haagensen pointed out that the two companies are familiar with one another and already have a joint venture in Great Britain. Yara also has been searching for better entry to the North American market and more production capacity, which CF can provide.
Eirik Melle, analyst at Danske Bank Market, told dn.no that the corporate headquarters issue will be important, and that Oslo may have an advantage. Yara’s organization is more “complicated” than CF’s, making it more logical to keep it intact.
When trading of CF shares opened Tuesday morning in the US, prices initially jumped 3.19 percent, after falling the day before, indicating that CF’s investors also viewed a possible merger as positive.