Fertilizer saga goes on; rival bids for ACS unlikely; People's makes move; coffee war brews

By Cristal Cody

Tupelo, Miss., Nov. 23 - The battle between Terra Industries Inc., CF Industries Holdings, Inc. and Agrium Inc. continued on Monday, with the fertilizer companies locked in a three-way takeover war that analysts don't expect to end soon.

Also on Monday, Xerox Corp. and Affiliated Computer Services, Inc. said the companies had resolved one of two shareholder lawsuits filed over Xerox's $6.4 billion takeover of ACS. The settlement allows for the potential of a counter bid, but at least one market observer considers that possibility doubtful.

In other situations on Monday, People's United Financial, Inc. said it will buy out Financial Federal Corp. in a stock-and-cash transaction valued at $738 million, an offer that came as quite a pleasant surprise considering the stock traded as low as $13.89 this year, an analyst told Prospect News.

Meanwhile, a battle for coffee appears to be brewing. On Monday, Peet's Coffee & Tea, Inc. said it increased its offer to buy out Diedrich Coffee, Inc. to $32.00 a share in cash and stock to counter a rival bid from Green Mountain Coffee Roasters, Inc.

On Wall Street, stocks turned upward and sent the Dow Jones Industrial Average up 132.79 points, or 1.29%, to close at 10,450.95.

The Standard & Poor's 500 index moved up 14.86 points, or 1.36%, to 1,106.24, and the Nasdaq Composite index rose 29.97 points, or 1.40%, to 2,176.01.

Fertilizer war gets third wind

Terra's board said the new offer from CF of $24.50 in cash, excluding Terra's $7.50-a-share cash dividend to be paid Dec. 11, and 0.1034 of a share of CF common stock remains inadequate for the Sioux City, Iowa-based nitrogen producer.

CF's proposal changes include a 30-day go-shop provision subject to a break-up fee and expense reimbursement.

In a statement on Monday, CF said that following Terra's annual meeting on Friday where it won three seats on Terra's board, representatives spoke with Terra executives to "discuss appropriate next steps to further a transaction between the two companies."

Deerfield, Ill.-based nitrogen and phosphate fertilizer producer CF, which has tried to acquire Terra since January 2009, said that it provided Terra a merger agreement form on Saturday that reflected the revised approach.

"We have proposed a process through which Terra and CF Industries could negotiate the terms of a transaction, while preserving Terra's ability to seek higher offers," Stephen R. Wilson, chairman, president and chief executive officer of CF, said in the statement. "It is clear that the Terra stockholders want a transaction, and we should move forward to put these two great companies together."

On Friday, CF said it had won the board seats by a substantial margin.

But Terra said in its statement that only 38% of shares unaffiliated with CF voted in favor of CF's nominees. Excluding the 7% of outstanding Terra shares that CF owns, preliminary voting results indicate CF's nominees were elected by a 2% margin, Terra said.

"Nothing about the vote changed the value of CF's proposal," Michael Bennett, Terra president and CEO, said in the statement. "We continue to believe that Terra's current strategy, which capitalizes on our attractive product mix, diversified customer base and geographic advantages, will deliver greater value than CF's proposal."

Terra also said that it would expand the company's board to 11 members from eight to allow the three independent directors who lost their seats in the election to continue to be members of the board.

Meanwhile, Agrium said Monday it will continue its $5.1 billion pursuit of CF on the strong showing of shares tendered in its offer, "particularly in comparison to the much weaker results CF received in the proxy contest for Terra."

Agrium, a Calgary, Alta.-based agricultural products retailer and fertilizer nutrients producer, said that more than 60% of CF shares have been tendered in its offer of $45.00 in cash and one Agrium share per CF share. The offer has been extended until Dec. 18.

The deal cannot be completed without CF board support because of a poison pill and other takeover defenses.

Mike Wilson, Agrium's president and CEO, said in the statement that "CF's board should respond appropriately and responsibly to the clear message sent by their stockholders, expressed through the tender offer. Agrium will continue to pursue this compelling transaction which is now worth more than $102 per share for CF stockholders."

Terra shares fell 43 cents, or 1.07%, to close Monday at $39.63.

CF's stock gained 31 cents, or 0.37%, to $83.04.

Agrium shares lost 60 cents, or 1.05%, to end at $56.72.

Xerox talks up deal

Xerox and ACS said Monday the companies had resolved a lawsuit filed by a pension fund in Dallas County, Texas, over the deal.

The class-action case filed by ACS shareholder the City of St. Clair Shores Police and Fire Retirement System in Michigan had sought an injunction to stop Xerox's cash-and-stock buyout.

The settlement provides that if Dallas-based ACS' board receives a superior offer and withdraws its recommendation of the deal, ACS chairman Darwin Deason will not be required to vote his 42% stake in favor of the Xerox acquisition.

Also, ACS will not be required to hold a shareholder vote on Xerox's bid under that scenario.

A class-action suit by other ACS stockholders remains pending in the Delaware Court of Chancery.

Could there be a better bid out there? Krisztian Szentessy, an analyst with Pali Capital Inc., doesn't think so.

Norwalk, Conn.-based Xerox said on Sept. 29 it will acquire ACS for $63.11 a share in cash and stock, which includes $18.60 in cash plus 4.935 Xerox shares for each ACS share.

"There has been market chatter of a potential counter bid for the company by [International Business Machines Corp.] However, we believe that there is a slim chance for an IBM bid," Szentessy said in a research note on Thursday. "IBM has a very strong position in outsourcing and is a major XRX partner. In addition, there is substantial overlap between ACS and IBM, although we acknowledge that outsourcing is highly competitive from an antitrust perspective."

The companies also are having a difficult time convincing investors of the deal.

"ACS and XRX appear to have been working hard to convince the investor community on the merits of the acquisition: ACS' corporate marketing department went as far as promoting the synergies for the merger on blogs," Szentessy said. "We have talked to several industry analysts and their opinions on the merits of the deal are mixed. The major concern appears to be whether XRX's sales force will have the ability to cross sell. The risk is that the two companies may not be able to extract any synergies."

Another major risk to the deal lies in the Delaware court hearing scheduled for Jan. 21, where some ACS shareholders allege the directors breached their fiduciary duties.

"We believe that one of the major risks to the transaction is the discovery of some irregularities in relation to the negotiation process of the merger agreement," Szentessy said. "We regard this as a low probability scenario. However, given the lack of transparency, we continue to have some concerns."

ACS and Xerox shareholders must approve the transaction. The deal also requires U.S. and European regulatory clearances.

ACS contracts with more than 1,700 federal, state and local governments to provide managed services, such as processing about $3 billion in electronic toll collections and about $16 million in parking tickets annually.

The acquisition is expected to close in the first quarter of 2010.

ACS shares closed up 60 cents, or 1.08%, at $55.90 on Monday.

Xerox shares added 10 cents, or 1.28%, to close at $7.93.

IBM shares rose $1.24, or 0.98%, to $128.20.

Financial Federal holders all smiles

Bridgeport, Conn.-based People's United Financial, the holding company for People's United Bank in New England, said Monday it will pay Financial Federal shareholders $11.27 in cash and one share of People's United for each share.

Based on the closing price of People's United on Friday, the transaction is valued at $27.74 per Financial Federal share - a 35% premium to Friday's closing price of $20.55.

Henry Coffey Jr., an analyst with Sterne, Agee & Leach, Inc., told Prospect News on Monday that the offer is quite "amazing" and is going to be "good for a lot of people."

"It's great. This is the No. 1 operator in equipment lending," he said. "Merging with a bank gives them a lower cost of funds and a greater reach to their customers. The challenges in the business are obviously the recession, so it's not going to be a stellar earner in the midterm, but it was bought at a price that is a nice compromise for the bank and the sellers."

New York-based Financial Federal lends to small and medium-sized businesses in the general construction, road construction and refuse industries.

Paul R. Sinsheimer, Financial Federal's CEO, said in a statement that the offer "substantially increases Financial Federal's growth potential by providing access to low-cost funding from People's United's deposits. The match in the credit cultures is another positive, as Financial Federal's underwriting philosophy echoes that of People's United."

Philip Sherringham, People's United president and CEO, said in the statement that the acquisition will provide a "valuable complement to our existing business lines."

The proposal must be approved by Financial Federal shareholders.

The companies expect the deal to close in the first quarter of 2010.

Financial Federal shares climbed to a new annual high of $28.06 during the day until shares fell back some to close up $6.06, or 29.49%, at $26.61 on Monday.

People's United stock slipped 44 cents, or 2.67%, to $16.03.

Coffee bids heat up

Peet's Coffee said Monday it increased its bid for Diedrich to $32.00 a share in cash and stock from an earlier offer of $26.00 a share.

Irvine, Calif.-based Diedrich, which has leading coffee brands that include Gloria Jean's Coffees, had received a counter bid to Peet's $26.00-a-share offer from Green Mountain Coffee for $30.00 a share in cash.

"We are confident that the Diedrich board will find our revised proposal to be superior for Diedrich's shareholders," Patrick O'Dea, president and CEO of Peet's, said in a statement.

Under the revised proposal with a new deal value of about $265 million, Peet's will pay $19.80 in cash and 0.321 of a share for each share of Diedrich.

Peet's, an Emeryville, Calif.-based specialty coffee and tea company, said it plans to finance the cash portion with cash on hand from both companies and $140 million of committed debt financing from Wells Fargo Bank, NA and Wells Fargo Securities, LLC.

Green Mountain Coffee said Monday in a statement that its offer of $247 million in cash has no financing or due diligence contingencies. The company plans to finance the deal through cash on hand and its existing bank credit lines.

Waterbury, Vt.-based Green Mountain Coffee's licensed products include Newman's Own Organics coffee and gourmet single-serve Keurig brewing systems.

Diedrich said in its statement on Monday that the board is "analyzing the two proposals."

Anton Brenner, an analyst with Roth Capital Partners, LLC, told Prospect News in an interview Monday that Diedrich thought it had a good offer when it agreed to the $26.00-a-share offer.

"And the counsel deemed that a fair value," he said.

Diedrich shares jumped $7.66, or 29.47%, to close at $33.65. The stock has traded as low as 21 cents in the past year.

Peet's stock slid $4.94, or 13.00%, to close at $33.06 on Monday.

Green Mountain shares added 43 cents, or 0.66%, to $65.44.

Mentioned in this article:

Affiliated Computer Services, Inc. NYSE: ACS

Agrium Inc. NYSE: AGU

CF Industries Holdings, Inc. NYSE: CF

Diedrich Coffee, Inc. Nasdaq: DDRX

Financial Federal Corp. NYSE: FIF

Green Mountain Coffee Roasters, Inc. Nasdaq: GMCR

International Business Machines Corp. NYSE: IBM

Peet's Coffee & Tea, Inc. Nasdaq: PEET

People's United Financial, Inc. Nasdaq: PBCT

Terra Industries Inc. NYSE: TRA

Xerox Corp. NYSE: XRX

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