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Update Yara International (YARIY.PK)

posted on February 16, 2010 at 11:05 am
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Norwegian fertilizer maker Yara International (YARIY.PK), already the biggest publicly-listed fertilizer maker in the world, just bought itself a big hunk of the North American market.

In an all-cash deal Yara agreed yesterday, February 15, to buy Terra Industries (TRA) for $4.1 billion. Terra had been the object of a hostile bid from CF Industry Holdings (CF) that had valued the company at $3.88 billion.

The price certainly can’t be called cheap–Yara is paying a 24% premium to the February 12 price for Terra–and there aren’t a lot of synergies in the deal—Yara has pegged cost savings post-acquisition at just $60 million in the first year.

But buying Terra will give Yara a 30% share in the North American market. And access to cheap U.S. natural gas. With natural gas, a major fertilizer feed stock, projected to stay cheaper in the United States than in Europe for at least the next few years, the deal gives Yara a big low-cost manufacturing base. In addition using company estimates and discounting for some inefficiencies in older and smaller Terra plants, it looks like Yara is adding capacity for about 20% less than it would cost to build new plants from scratch.

 Yara management has set a goal of 10% global market share; this deal brings Yara to about 8%.

Whether the deal is good for Yara shareholders or not depends on your view of fertilizer demand.

 Yara management is clearly betting—by buying capacity–that global fertilizer demand is near an upturn that after the recovery from the global economic crisis will see a return to the pre-crisis steady increase in demand for more food—as global populations and incomes rise—and more fertilizer. In 2008 the United Nations Food and Agriculture Organization forecast that global fertilizer demand would grow by 1.7% a year through 2012. A return to that level, plus some catch up consumption as farmers who stinted in fertilizer application during the economic downturn rebuilt the nutrient level of their soils, is a reasonable assumption in my opinion and justifies Yara’s move and the acquisition price.

I do expect some downward pressure on the stock as the company moves to raise cash for the deal through a rights offering in May or June.

But I’d use weakness to build long-term positions. As of February 16 I’m leaving my target price at $53 a share by November 2010.

Full disclosure: I own shares of Yara International in my personal portfolio.

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7 comments

  • robert1234 on 16 February 2010

    I type into my scottrade account YARIY.PK and all I get is a statement saying there is no ticker symbol. Am I using the wrong ticker ?

  • davcbr on 16 February 2010

    the “.PK” stands for “Pink Sheets”
    The same will happen at Fidelity. First think is to try it without the “.PK”. If this doesn’t work, then perhaps Sctt has some other designation. There should be a look-up somewhere on their site.

  • davcbr on 16 February 2010

    PS
    Many times you will find that there are extra trading fees involved with foreign companies thru the pink sheets.

  • Jim Jubak on 16 February 2010

    The PK suffix is how Yahoo does the symbol for pink sheet stocks. We use Yahoo as a data feed so that’s the symbol I give. You should be able to find Yara by doing a look up on what ever brokerage site you use.

  • ripper on 16 February 2010

    Companies on the Pink Sheets are not required to meet minimum requirements or file with the SEC. Typically, companies are on the Pink Sheets because either they are too small to be listed on a national exchange or they do not wish to make their budgets and accounting statements public. copied from http://www.investopedia.com/ask/answers/201.asp. I had no idea Yara international was the largest, I thought potash was.

  • ripper on 16 February 2010

    Jim:
    Yara international bought Terra Industries Inc so I can assume that Terra Nitrogen Company, L.P. is going to remain?

  • stbw on 16 February 2010

    SO……
    Sorry, but I’m a newbie at this. What does this mean to me as a TRA holder ? Will my stock be bought out ? Or do I sell since it’s up 22% ? I owned BUD when it was sold, and it seems after awhille, it just showed as a sale in my account.

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