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Opinion: CF boss should flash the cash

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Is CF Industries sitting on the solution to its Terra Industries headache?

Sure, the Illinois-based fertilizer group's current plans for taking over its rival might work.

CF chief executive Stephen Wilson wants to start an insurrection in Terra by getting three of his nominees voted onto the Iowa-based group's board at a shareholder meeting.

But he might his chances of success by lavishing on Terra investors some of the cash he has tucked away behind the skirting.

Cash hoard

Investors certainly want to get their hands on it.

That's why CF is, following talks with shareholders, planning to hand back $1bn of the $1.35bn stash that it and Terra have between them, provided the merger goes through.

CF may be better offering Terra investors some of the hoard now by offering at least a part-cash alternative to its current all-share bid.

Balance of power

That might help him Mr Wilson two ways.

First, it might lure bid acceptances from Terra investors. Cash would be a better alternative to shareholders concerned that another market plunge lies around the corner, which would slash the value of CF's offer. It might also tempt investors who are sceptical of the merger, but quite happy to bank a bid premium.

Second, it would leave CF with a better grip of the merged company. As it stands, Terra investors will own half the shares in the combined group.

The more Terra shareholders that cashed out, the bigger the say that CF investors would have over the new enterprise.

Investor disquiet

The disadvantage to Mr Wilson of letting his cash base leach away is that it would deplete his firepower for investments – including further takeovers.

But that might go down well with shareholders too. The vote by 62% of CF investors in June to support a takeover by Canada's Agrium was, while not legally binding, a measure of significant unease over his current strategy.

That is hardly surprising when Mr Wilson has proposed denying his investors a say in the Terra deal.

They might well prefer it if, the next time he wanted to go on a shopping spree, he was forced to come to them with a begging bowl and an explanation first.


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