Olso-based Yara International ASA and Chicago-based CF Industries Holdings, Inc. on Tuesday confirmed they are in merger talks that would create a $27 billion fertilizer giant, rivaling The Potash Corporation of Saskatchewan Inc.
Yara shares jumped 9% to a three-year high in early trading on the Oslo stock exchange on Tuesday.
Yara would benefit enormously by having key production plants in the United States, where cheap natural gas offers much lower costs. The US shale gas revolution has made the country an attractive place for industrial companies.
Natural gas, a key raw material for fertilizer companies, is over 60% cheaper in the US compared to Europe.
CF Industries would benefit from Yara’s presence in more than 150 nations, as well as its vast distribution network.
The new entity would have a market capitalization of $27.5 billion. Saskatoon-based Potash Corp. would still be the largest, with a market capitalization of $28.9 billion.
A Yara-CF merger would create the world’s second-largest fertilizer company.
In a filing to the Oslo stock exchange, Yara warns that talks are still at a very early stage, and there is no guarantee that negotiations will lead to a transaction. It added that it had to announce that talks were underway because there was a risk of a leak.
In a statement on its website on Tuesday, Yara International ASA, the world’s largest nitrogen company, wrote:
“Yara International ASA confirms it is in discussions with CF Industries regarding a potential merger of equals transaction. The discussions are at an early stage, and there can be no assurances that these discussions will result in any transaction.”
CF Industries also published the same statement.
The International Fertilizer Industry Association forecasts global oversupply for the next four years. This is mainly due to China’s huge production increase over the last few years.
Four years ago, Yara had tried to expand its production in the United States when it tried to buy Terra Industries. CF Industries eventually clinched a $4.7 billion deal to acquire Terra in 2010.
