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CF strengthens EU foothold with GrowHow purchase

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CF Industries, which last year broke off merger talks with Norway's Yara International, revived moves to expand in Europe by taking full control of GrowHow, in a deal valuing the UK-based nitrogen producer at $1.3bn.

US-based CF Industries said it had purchased the outstanding 50% of GrowHow, from Yara, for $580m, taking full control of a business which is the UK's largest fertilizer manufacturer.

The deal will give CF two nitrogen plants, with combined capacities for 900,000 tonnes of ammonia, 1.2m tonnes of ammonium nitrate and 400,000 tonnes of NPK, the combined nitrogen, phosphate and potash fertilizer.

And it follows a so-called "shoot-out" process, under which CF and Yara both bid for full control of GrowHow, with the winner taking the asset.

CF vs Yara viewpoints

According to Yara - which said that the deal on a 50% basis values GrowHow at $648m overall, including $68m in unfunded pension liability – CF's offer "represents an attractive value" for the Norwegian group.

Yara, which has leading nitrogen market shares in many European countries, also stressed that GrowHow has "limited export possibilities", serving "primarily" the UK market which is a net substantial net nitrogen importer.

CF, by contrast, while noting that the UK produces only 55% of the ammonium nitrate its uses, highlighted that GrowHow offered "an advantaged position in an import-dependent region".

The US group said that the deal valued GrowHow at 7.9 times historic earnings before interest, tax, depreciation and amortisation (ebitda), a multiple which "compares favourably" to CF's own, rated by Reuters at 8.7 times ebitda.

'Stable political and economic region'

CF added that it expected a "mid-teens return profile" from the acquisition, which follows a sale last week of the group's 50% stake in Swiss-based fertilizer trader Keytrade.

Wednesday's GrowHow purchase was a "continuation of CF Industries' track record of pursuing shareholder value-creating capital deployment", the company said.

The deal will allow CF to exploit "favourable" downward trends in natural gas prices in Europe.

And it represents "international expansion in stable political and economic region", said the group, which acquired its initial 50% stake in GrowHow through the purchase of Terra Industries five years ago.

Failed merger

The purchase comes eight months after CF broke off talks with Yara over a merger which would have created a $30bn nitrogen giant, but which is believed to have foundered on the US group's demand for a 50% stake in the merged enterprise.

Although Yara is by far the larger of the two companies by revenues, CF's ability to tap into cheap North American shale gas has allowed it far higher margins, and it attracts a higher stockmarket rating.

Yara trades at 7.0 times trailing ebitda.

The Norwegian group added that, despite the disposal of its GrowHow stake, it remained "dedicated to British agriculture".

The UK, the European's third ranked wheat producing country, is a major fertilizer market.

Yara shares stood 1.0% higher at NOK412.40 in lunchtime deals in Oslo.


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