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Douglas C. Barnard, ’98, vice president of an agrichemical company with $4 billion in annual revenue, described his early years with the company and then recounted to students the role he played in a recent four-way hostile takeover battle to acquire a competitor.
Barnard, who serves as vice president, secretary, and general counsel of Deerfield, Illinois–based CF Industries, was interviewed by Scott F. Meadow, clinical professor of entrepreneurship, on February 26 at Gleacher Center. The lunchtime event was the second installment of the Alumni Business Leader Lunch series, sponsored by the Part-Time Student Advisory Council and the Office of Alumni Affairs and Development.
When Barnard joined the company in 2004, CF Industries was an agricultural cooperative owned by its eight largest customers. When he first interviewed with the CEO, and then again shortly after his arrival, Barnard and the CEO discussed the idea of going public, but the CEO was skeptical that it could happen due to industry conditions.
“He and other colleagues reminded me that the company had lost money for five consecutive years, from 1999 through 2003, and pointed out that the company faced foreign competitors with lower cost inputs.”
Nevertheless, the IPO idea remained intriguing, and Barnard went so far as to write a draft prospectus. Gradually, the notion of an IPO became more feasible, and management pitched the idea to the owners and showed them the draft prospectus, and by August 2005 the company went public at $16 per share. This critical action combined with a cyclical upturn in the industry moved the “money-losing company” into a position of strength. Fertilizer was now in high demand due to an explosive growth in the demand for coarse grains in Asia, and corn-based ethanol had become a viable alternative fuel source.
“Things turned around so dramatically in the industry,” said Barnard, “that by 2007, we had become the top performing company on the New York Stock Exchange.” By the middle of 2008, the stock price passed $170 a share.
Then the financial crisis hit, and the stock price fell below $40 by the end of 2008. Early the next year, CF made a hostile offer for rival fertilizer maker Terra Industries, whose stock price had also fallen very low.
“We made an all-stock offer, which tends to remove industry cyclicality from the equation, but Terra was not interested.”
Only a month later, CF found itself fending off a hostile takeover bid by the Canadian fertilizer company Agrium.
By the end of 2009, the three-way battle had apparently reached a stalemate.
Around the same time, Morgan Stanley made $4 billion available to CF as a bridge loan to purchase Terra.
“This financing enabled us to turn our all-stock offer into a substantially-cash offer.”
However, Terra kept postponing its decision. A breakthrough came when CF “won a proxy contest” and was able to place three independent directors on Terra’s corporate board. The odds were now in CF’s favor—or so it seemed. Inexplicably, the Terra board unanimously turned down CF’s new offer.
One possible explanation was revealed a few months later—Terra had a stealth suitor: Norwegian fertilizer firm Yara International. In February 2010, Terra and Yara announced a “friendly deal.” But CF came in with a higher offer and outbid Yara—who didn’t rebid. Meanwhile, Agrium dropped its attempt to take over CF. By this time, CF stock had been driven up to $110 due to steadily improving industry conditions against the backdrop of Agrium’s unsolicited offer for CF.
In the end, CF emerged victorious in the fierce, four-way takeover battle waged over 15 months. Subsequently, CF stock fell to the high $50s, in concert with other fertilizer stocks, and then climbed back over $110 again, all within the first six months after the Terra acquisition. Recently, the stock has surpassed $150, as CF finishes integrating the legacy Terra operations and realizing the synergies created by the acquisition.
Today, “everything seems to be aligned again in the external environment,” according to Barnard, in part because of high crop prices and also because the price of natural gas—the principal raw material used to make nitrogen fertilizer—has fallen dramatically due to shale drilling.
“Now natural gas is abundant in North America,” said Barnard, “which certainly wasn’t the case when I joined the company pre-IPO in 2004.”
Student Xiaobol “Sabrina” Hou said she found it inspiring that Barnard “pursued his idea to take the company public,” while fellow student Chris Santore said he was “interested in the industry and how the company navigated the cyclical markets.”
Another student, Dan Moll, found Barnard’s account of the hostile takeover battle “a compelling story with intricate decisions. Morgan Stanley made the bridge deal and I’m going to Morgan Stanley this summer, so that interested me as well.”
--Mary Paleologos