Shares in Terra Industries jumped 7% after suitor CF Industries dug into its cash reserves to help raise to $4.05bn its offer for its rival, as a showdown between the fertilizer giants draws nearer.

CF offered $32.00 in cash, plus 0.1034 of its own shares, for every Terra share.

The bid, the third revision by CF to its offer terms, valued Terra shares at $40.61, as of closing prices on Friday - $1.90-a-share, or $189m, more than under the terms of CF's previous, all-stock bid.

It also represented a premium of 28%, compared with Terra's closing price on Friday, "and a significantly higher premium to the price at which Terra shares would have traded without takeover speculation", CF said.

'Offer insufficient'

Terra shares stood 6.8% higher at $33.94 in lunchtime deals in New York.

However, this represented a discount of nearly 17% to the value of the bid, using CF's share price of $83.49, up 0.3% on the day, implying significant doubts remain that the offer will succeed.

"We believe that CF's latest offer is insufficient to win Terra shareowners vote, since we value Terra at $40 without any deal," analysts at Sterne Agee, the US broker, said.

'Certainty on value'

The sweetened deal comes less than three weeks before Terra's annual meeting, at which CF is campaigning to get three of its nominees voted onto its target's board.

Stephen Wilson, the CF chief executive, said the addition of cash to the offer "makes the combination far more accretive for CF Industries stockholders, while providing certainty on value and closing for Terra stockholders".

He added: "The transaction is clearly in the best interests of our respective stockholders."

Terra, a nitrogen fertilizer specialist, said that, "consistent with its fiduciary duties and in consultation with its independent financial and legal advisors, [it] will review and consider the revised proposal in due course".

Small print

CF's deal, which the company said valued Terra at 7.1 times its earnings before interest, tax, depreciation and amortisation over the last year, is dependent on a financing commitment from Morgan Stanley which expires at the end of November should a deal not have been agreed.

Dependent on the prevailing conditions in financial markets, CF may be able to extend the deadline for a further month.

"We reserve the right to withdraw our offer if a merger agreement is not entered into by November 30," Mr Wilson said.

CF is expected to end the year with cash reserves of $718m.