CHS To Invest $2.8 Bln In CF Industries Unit

(RTTNews) - Fertilizer maker CF Industries Holdings, Inc. (CF) and farmer-owned cooperative CHS Inc. (CHSCP) have agreed to form a strategic venture, under which CHS will invest $2.8 billion in a subsidiary of CF Industries and also enter into a supply agreement, the two companies said Wednesday.

CHS will acquire a minority equity stake in CF Industries Nitrogen, LLC for $2.8 billion and be entitled to semi-annual profit distributions from CF Nitrogen. The semi-annual profit distributions will be based generally on the volume of granular urea and UAN purchased by CHS pursuant to the supply agreement.

CF Nitrogen currently owns three production facilities in the U.S. - Donaldsonville in Louisiana, Port Neal in Iowa, and Yazoo City in Mississippi. CF also expects to contribute its Woodward, Oklahoma, plant to the LLC prior to the transaction closing. CF will continue to manage and operate all production facilities.

Under the supply agreement, CHS will be entitled to buy annually up to a total of 1.7 million tons of UAN and urea at market prices. This will comprise of 1.1 million tons of granular urea and 580,000 tons of UAN.

The transaction is expected to close on February 1, 2016, or earlier by mutual consent.

Tony Will, President and CEO of CF Industries Holdings, said, "In the past, we have entered into long-term relationships with industry leaders Mosaic and Orica, and this venture with CHS, an industry leader in agriculture, is the logical next step. This transaction matches us with a reliable partner that will take ratable delivery of product across the year, supported by an attractive valuation."

CF Industries noted that on completion of its capacity expansion projects at Donaldsonville and Port Neal, it will have total production of 18.9 million product tons, excluding the new capacity from the business combination with OCI N.V.

Of that total 18.9 million tons, CHS will have the right to purchase up to 1.7 million tons, or about 8.9 percent of CF Industries' total production capacity. CHS, a major CF Industries' customer, will make the $2.8 billion investment for about 8.9 percent of CF Industries' total system capacity.

For CF Industries, Morgan Stanley & Co. LLC and Goldman, Sachs & Co. are serving as its financial advisors on the transaction, while Skadden, Arps, Slate, Meagher & Flom LLP is acting as its legal advisor. Kirkland & Ellis LLP is acting as its tax advisor.

Baker & McKenzie LLP is acting as legal advisor to CHS on the transaction.

CF is trading at $58.20, up $1.23 or 2.16 percent on a volume of 1.29 million shares. CHSCP is trading at $30.44, up $0.21 or 0.69 percent on a volume of 100 shares.