CHS to invest $2.8 billion in nitrogen fertilizer deal

by World Grain Staff
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ST. PAUL, MINNESOTA, U.S. — CHS Inc. announced on Aug. 12 that it is spending $2.8 billion for a minority interest in CF Industries Nitrogen, LLC that will give CHS access to 8.9% or 1.7 million short tons of CF’s nitrogen fertilizer production.

As part of the strategic venture, CHS will be entitled to semi-annual profit distributions from CF Nitrogen. CF Nitrogen is a wholly owned subsidiary of CF Industries Holdings, Inc.
This is the single largest investment in CHS history, said Carl Casale, CHS president and chief executive officer (CEO).

"This positions CHS and our owners for long-term dependable fertilizer supply, supply chain efficiency and economic value. In addition, the ability to source product from CF Nitrogen production facilities under our supply agreement benefits our owners and customers through strategically positioned access to essential fertilizer products," he said.

Casale also announced CHS will not move forward with construction of a proposed fertilizer plant in Spiritwood, North Dakota, U.S. Given the dynamic market for nitrogen fertilizer manufacturing and distribution, investing in CF Nitrogen creates access to more immediate benefits to CHS owners and customers than a four-year plant construction window, he said.

An investment in CF Nitrogen enables CHS to serve its entire customer base through geographically diversified production and multiple transportation modes – including truck, rail and barge – that leverages the CHS distribution system and risk management expertise, he said.

CF Nitrogen currently owns three production facilities in the U.S.: Donaldsonville, Louisiana; Port Neal, Iowa; and Yazoo City, Mississippi. CF also expects to contribute its Woodward, Oklahoma, U.S., plant to the LLC prior to the transaction closing. CF will continue to manage and operate all production facilities.
"This venture represents tremendous strategic value to both CF Industries and CHS," said Tony Will, president and CEO, CF Industries Holdings, Inc.

"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."

Once the capacity expansion projects are completed at Donaldsonville, Louisiana, U.S. and Port Neal, Iowa, U.S. CF will have total production of 18.9 million product tonnes, not including the new capacity from the business combination with OCI N.V. Of that total 18.9 million tonnes, CHS will have the right to purchase up to 1.7 million tonnes, or about 8.9% of CF Industries' total production capacity.  CHS, a major CF customer and knowledgeable industry leader, is making a $2.8 billion investment for approximately 8.9% of CF's total system capacity.

CF Nitrogen will sell annually to CHS up to 1.1 million tons of granular urea and 580,000 tons of UAN, at market prices. The 1.7 million tons available under the supply agreement have an average gross margin that reflects the average gross margin across the entire CF system.

CHS's semi-annual profit distributions from CF Nitrogen will be based generally on the volume of granular urea and UAN purchased by CHS pursuant to the supply agreement.  

The transaction is expected to close Feb. 1, 2016, or earlier by mutual consent, subject to satisfaction of certain conditions.

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