tra terra industries nov 2009 presentation
TRANSCRIPT
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Important
Information
and
Where
to
Find
It
OnOctober13,2009,TerrafiledwiththeSecuritiesandExchangeCommission(theSEC)adefinitiveproxystatementinconnectionwithits2009AnnualMeeting,andismailingthedefinitiveproxystatementtoitsshareholders.Investorsandsecurityholdersareurgedtoreadthedefinitiveproxystatementrelatingtothe2009AnnualMeetingandanyotherrelevantdocumentsfiledwiththeSEC(whenavailable),becausetheycontainimportantinformation.InvestorsandsecurityholdersmayobtainafreecopyofthedefinitiveproxystatementandotherdocumentsthatTerrafileswiththeSEC(whenavailable)atthe
SECs
Web
site
at
www.sec.gov
and
Terras
Web
site
at
www.terraindustries.com.
In
addition,
the
definitive
proxy
statementandotherdocumentsfiledbyTerrawiththeSEC(whenavailable)maybeobtainedfromTerrafreeofchargebydirectingarequesttoTerraIndustriesInc.,Attn:InvestorRelations,TerraIndustriesInc.,600FourthStreet,P.O.Box6000,SiouxCity,IA511026000.
CertainInformationConcerningParticipants
Terra,itsdirectors,executiveofficersandcertainemployeesspecifiedinAnnexAtoTerrasdefinitiveproxystatementforthe2009AnnualMeeting,whichwasfiledwiththeSEConOctober13, 2009,areparticipantsinthesolicitationofTerrassecurityholdersinconnectionwithits2009AnnualMeeting.Securityholdersmayobtaininformationregardingthenames,affiliationsandinterestsofsuchindividualsinTerrasAnnualReportonForm10KfortheyearendedDecember31,2008,whichwasfiledwiththeSEConFebruary27,2009andamendedonApril28, 2009,anditsdefinitiveproxystatementforthe2009AnnualMeeting.TotheextentholdingsofTerrasecuritieshavechanged sincetheamountsprintedinthedefinitiveproxystatementfor
the
2009
Annual
Meeting,
such
changes
have
been
or
will
be
reflected
on
Statements
of
Change
in
Ownership
on
Form
4
filedwiththeSEC.Thesedocuments(whenavailable)maybeobtainedfreeofchargefromtheSECsWebsiteatwww.sec.govandTerrasWebsiteatwww.terraindustries.com.
Importantadditionalinformation
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Executivesummary
Terrais
astrong
investment
proposition
with
arobust
near
term
outlookandsolidlongtermprospects
CF
/
Terra
combination
lacks
compelling
strategic
rationale
CFsproposalisinadequateandopportunistic
TerrashighlyqualifiedandindependentBoardisfocusedondeliveringshareholdervalue
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Title
SubTitle
TerraIndustries
Inc.
Supplying
Industry CleaningtheAir FeedingtheWorld
4
Terraisastronginvestment
proposition
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Terraisastronginvestmentpropositionwitharobustneartermoutlookandsolidlongtermprospects
Theleadingpureplaynitrogencompany
Uniquelypositionedtoservedieselexhaustfluid(DEF)customers
Strongnitrogenindustryfundamentals;wellpositionedtocapturegrowth
UreaAmmonium
Nitrate
(UAN)
commands
apremium;
strong
upside
for
industrial
sector
nitrogen
ExpectedincreaseinU.S.naturalgassuppliescouldtransformtheNorthAmericannitrogenindustry
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StrongnitrogenindustryfundamentalsAgriculturalbusinessisprojectedtogrowoverthenext10years
Nitrogenis
required
each
year
to
fertilize
crops,
unlike
phosphate
and
potash
whoseapplicationcanbediscretionary
Nitrogenconsumptionisexpectedtoberobust,drivenbyplanted acresofcorn
PlantedacresofcornintheUnitedStates(acresinmillions)
86.0
87.0
89.0
90.090.5
83
84
85
86
87
88
89
90
91
2008/09E 2009/10E 2010/11E 2014/15E 2018/19E
Plantedacres
(millions)
Source: USDA.
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WellpositionedtocapturegrowthIncreasedproductiontoUAN,ahighgrowth,flexibleproduct
ExpandingWoodwardfacilityUANcapacityfrom300,000tonsto825,000tons
PositionsTerratotakeadvantageofcontinuedgrowthinUAN
UANhasbeenamongthefastest
growingnitrogen
products
in
North
America
TerraEnvironmentalTechnologiesisfocusedonliquidureasalesintothe
fastgrowing
environmental
sector80
90
100
110
120
130
140
150
160
170
2003 2005 2007 2009E 2011E 2013E 2015E
UAN Urea
IndexedNorthAmericanUrea&UANVolume(2003=100)(fertilizerconsumption+exports)
Source: Fertecon.
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UANcommandsapremium
GreenMarkets MidCornbelt($perlbN)
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
$0.80
$0.90
Mar-00 Aug-01 Dec-02 Apr-04 Sep-05 Jan-07 May-08 Sep-09
UAN Urea Ammonia
Source: GreenMarkets.
ChinaraisesexporttariffonUreato135%
StrongdemandfromIndiaandPakistan
tightensglobalsupply
Abnormaltradingactivityandunusualexportsprovokedby
ongoingdelaysinU.S.harvest/inventoryrestocking
TerrawillprofitastheUANpremiumreturnsin2010andbeyond
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StrongupsideforindustrialsectornitrogenGrowingenvironmentalandstablemarginindustrialbusinesses
Growthdrivenbyincreasedemissionreductionrequirements
Environmentaltechnologies
LeaderinNOxabatementreagents
TheleadingNorthAmericanDEFproducer
DedicatedDEFproductioncapacity
Dedicatedtechnicalteam
Fullsupplychainoversight
Stablemarginbusiness
Industrialchemicals
LeadingNorthAmericanproducerofammoniaandderivativessuchas:
Ammoniumnitrateasablastingproductforminingapplications
NitricAcidasarawmaterialfornylonfibers,polyurethanefoams,specialtyfibers,andothernitrogenproducts
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ExpectedincreaseinU.S.naturalgassuppliescouldtransformtheNorthAmericannitrogenindustry
CERA Historicalandprojectedgasprices($/mmbtu)
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
$16.00
Jan05 Jan08 Jan11 Jan14 Jan17 Jan20
Source: HISCambridgeEnergyResearchAssociates;PlattsGasDailyhistoricaldata.
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Recentdevelopments OnSeptember24,2009,Terraannouncedthatitintendstoreturn cashtoits
shareholders
through
a
special
cash
dividend
of
$7.50
per
share
(~$750
million) AnnounceddeclarationofdividendonOctober29,2009;dividendwillbepaidonDecember
11,2009toshareholdersofrecordasofNovember23,2009
OnOctober19,2009,Terraannouncedthatithadsignedanagreementtoacquirea50%interestinAgriumInc.sCarseland,Alberta,Canadanitrogenproductionassets
andcertain
U.S.
assets
for
approximately
$250
million
Highqualityfacility:lowgascosts;attractiveproductpricing
Increasesexposuretomanufacturingofupgradedammoniabasedproducts
Capacitytoproduceapproximately590,000shorttonsofammoniaandapproximately
750,000short
tons
of
granular
urea
per
year
Attractivevaluation uniqueopportunity
ExpectedtobeimmediatelyaccretivetoTerrasshareholders
Transactionsubjecttocertainconditionsandcontingencies,includingAgriumscompletionofitsproposedacquisitionofCF
OnOctober26,2009,TerraCapital,Inc.announcedtheclosingofitsprivateofferingof$600millionaggregateprincipalamountof7.75%SeniorNotes due2019
UseofproceedstoredeemexistingSeniorNotesdue2017,fundspecialcashdividendpaymentandfundCarselandacquisition
Successful,over2xoversubscribedoffering
MoreflexiblecovenantpackagerelativetothepriorSeniorNotesdue2017
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Title
SubTitle
TerraIndustries
Inc.
SupplyingIndustry CleaningtheAir FeedingtheWorld
14
CF/Terracombinationlacks
compellingstrategic
rationale
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CF/Terracombinationlackscompellingstrategicrationale
Terrashareholders
would
own
approximately
17%
of
the
pro
forma
company
Terraisuniquelypositionedtoobtainsellingpricepremiumsandadvantagedcostgas
CFlacksmeaningfulscaleinphosphatefertilizer
CF
has
a
mixed
track
record
with
new
ventures
and
strategic
direction
is
inconsistent
Increasedphosphate(DAP)supplygoingforwardisexpectedtodecreaseprices
CFsphosphatesegmenthasbenefittedfromatemporaryprofitspike
TerrahasconsistentlyexpressedthelackofstrategiclogicoftheCF/Terratransaction
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TerrahasconsistentlyexpressedthelackofstrategiclogicoftheCF/Terratransaction
CFandTerrahaveenteredintomanydiscussionsoverthecourseoftheirhistoryregardingacombination
Eachtime,TerrahasdeterminedthatacombinationwithCFdoesnotmakestrategicsenseandisnotbeneficialtoTerrashareholders
In2004,TerradecidedtopursuetheacquisitionofMississippiChemicalinstead
In2007,CFinitiateddiscussionswithTerra,whichTerradecidednottopursue
Terrahasconcludedthattheindustrialandstrategiclogicofa combinationwithCFhas
notbeen
compelling
at
any
time
and
the
value
proposition
was
insufficient
to
merit
furtherdiscussions
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Ammonia
Agricultural
15%
Other
3%
UAN
48%
Urea
4%
AmmoniumNitrate
11%
Ammonia
Industrial
19%
UAN
30%
Ammonia
Agricultural
23%
Urea
47%
Agricultural
71%
Industrial
29%
Agricultural
100%
Terraisaleadingpureplayproducerofnitrogenfertilizer
Upgradessignificantportionofammoniacapacitytohighervalue
addedproducts
Focusesonhighermarginproductsvs.ammoniaandurea
Servesbothagricultureandmore
stable
industrial
customers
TerrasmorestableandhighermarginproductportfoliowouldbedilutedbyatransactionwithCF
ShiftsTerrasbusinessfocusaway
fromhigh
growth
UAN
and
ammoniumnitratetowardsureaandammonia
ReducesTerrasdiversificationandincreasesexposuretoagricultural
cyclicality
2008revenuebyproductmix
2008revenuebycustomermix
2008revenue:
$2,891
million
Source: Terramanagement andCFfilings.
Terra CFNitrogen
2008nitrogen
revenue:
$2,591
million
Terrashareholderswouldownapproximately17%oftheproformacompany
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TrinidadandTobagoandUnitedKingdom
TerrasproductionfacilitiesareideallylocatedtoservetheCornbelt
NaturalgasatbasisadvantagetoHenryHub
Terra
has
deliberately
located
its
coremanufacturingassetsawayfromtheU.S.GulfCoast,whereimportcompetitionismostsevere
65%ofTerrastotalNorthAmericanammoniaproductionvolumeis
locatedinland
or
in
gas
advantaged
regionsvs.CFs27%
AveragepremiumforUANforMidContinentvs.Gulfpricingwas$39pertonfromJanuary1,2004to
September30,
2009
Source: Terramanagement,CFfilingsandFertecon.
Notes: Shadedstates
indicate
the
Cornbelt.
ThepercentageofTerrastotalammoniaproductionvolumelocatedinlandoringasadvantagedcountriesincludestheproposedCarselandjointventure.
TerraProduction CF
Nitrogen
Production
Terraisuniquelypositionedtoobtainsellingpricepremiumsandadvantagedcostgas
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J.R.Simplot
Company8%
Other7%
PotashCorp 24%
CF10%
Agrium7%
Mosaic44%PotashCorp5%
Ammophos2%
OCFL2%
CF2%
GCT3%
OCP7%
Mosaic9%
Other70%
Domesticphosphateconsumptionhasremainedflatoverthepast10years(19992008CAGR:0.6%)(1)
U.S.phosphatemarketreliesonexportstoremainprofitable
Significantvolatilityinsulfurandphosphaterockpricing
CFlacksmeaningfulscaleinphosphatefertilizer
Globalphosphoricacidcapacity
Source: IFDC Worldwide Phosphoric Acid Capacity Listing by Plant, Sep. 2009.(1) USDA.
NorthAmericanphosphoricacidcapacity
Witha2%shareofglobalcapacity,CFlacksthescaletoremain asignificantplayerinthephosphatemarket
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h d k d h d
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Perunitrogen
complex
CFispursuingahighlycapitalintensivePeruprojectwhoseeconomicsareunknownandwhose
financing
is
uncertain
CF'sPeruinvestmentisfraughtwithexecutionriskandofquestionablevalue,evenifeventuallydeveloped
AlthoughCFmanagementhasstatedtheybelievetheprojecthas$69/shareofNPV,theywillbemakingagonogodecisionbytheendof2009despitehavingalreadyincurred$25.7millioninprojectdevelopmentcostsin2009
Expecttoincuranadditionalchargeof$10 $11millionindevelopmentcostsrelatedtoPeru
project
in
Q4 Highlyspeculative50%financinginachallengingprojectfinancingenvironment
CFhasamixedtrackrecordwithnewventuresandstrategicdirectionisinconsistent
Potash
Afailedventure
CFphosphate
gross
margin
was
negatively
affected
by
higher
input
costs
and
by
potash
inventory
writedownsinQ42008,Q12009andQ22009
Approximately$56millionintotalwritedowns
CFsresponse:
Werefinishedwithpotash.Wedneversayneverinanybusiness.CFhasbeeninthepotashbusinessbefore,butobviouslythisbeforeitbecameapubliccompany.Anditwasverysuccessfulatthetime,I
understand,
although
I
didnt
have
personal
experience
with
it.
Obviously,
the
strategy
we
tried
to
implementandexecuteassociatedwiththispotashwasilltimedandultimatelynotsuccessfulanditwasamistakeweplannottorepeat.
AnthonyNocchiero,CFsCFOSeptember16,2009
CFpubliclyindicateditsDonaldsonvilleplant,withitsMississippiRiverlocation,alsobenefitsfromamakeversusbuy capability,replacingoraugmentingproductionwithimportedproductwheneconomicsjustifyit (1)
However,unlikeTerra,whereDonaldsonvilleisoneofmanyfacilities,DonaldsonvilleisCFsonlywhollyownednitrogenproductionflagshipasset
Donaldsonville Consideredaswingplant
(1) CFsMay20,2009investorpresentation.
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Title
SubTitle
TerraIndustries
Inc.
SupplyingIndustry CleaningtheAir FeedingtheWorld
23
CFsproposalisinadequate
andopportunistic
CF l i i d t d t i ti
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CFsproposalisinadequateandopportunistic
CFsproposalisopportunisticandthepremiumisillusory
TerrashareholdersarenotreceivingadequatecompensationforthevalueofCFsestimatedsynergies
CFsproposalvaluesTerraatasignificantlylower2010EEBITDAmultiplecomparedtocurrentpeertradingandprecedentfertilizertransactionmultiples
CFcansignificantlyincreaseitsproposalwhilemaintaininganaccretivetransaction
CF l i t i ti
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0.2500x
0.3000x
0.3500x
0.4000x
0.4500x
0.5000x
0.5500x
8/11/05 3/7/06 10/2/06 4/29/07 11/24/07 6/20/08 1/15/09
$0
$250
$500
$750
$1,000
$1,250
$1,500
Exchangeratio DAPphosphateprice
CFsproposalisopportunistic
Source: FactSetandFertecon.(1) DAPpricereportedmonthlyandbasedonU.S.Gulf bulkFOB.
(1)
Dailyexchangeratio MonthlyU.S.DAPpricing($/tonne)
CFchosethemostfavorabletimeinitspublichistorytoseektoacquireTerra,fromanexchangeratiostandpoint
CFs proposal is opportunistic (contd)
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$0.20
$0.40
$0.60
$0.80
Mar-00 Aug-01 Dec-02 Apr-04 Sep-05 Jan-07 May-08 Sep-09UAN Urea Ammonia
CF sproposalisopportunistic(cont d)
Strongnitrogenindustryfundamentals
Agricultural
business
is
projected
to
grow
over
the
next
10
years Nitrogen is required each year to fertilize crops, unlike phosphate and potash
whose application can be discretionary
Wellpositionedtocapturegrowth
Increased
production
to
UAN,
a
high
growth,
flexible
product
UANcommandsapremium CERAHistoricalandprojectedgaspricing
PlantedacresofcornintheUnitedStates(acresinmillions)
86.0
87.0
89.090.0
90.5
82
84
86
88
90
92
2008/09E 2009/10E 2010/11E 2014/15E 2018/19E
Plantedacres
(millions)
Source: USDA.
80
100
120
140
160
2003 2006 2009E 2012E 2015E
UAN Urea
IndexedNorthAmericanUrea&UANVolume(2003=100)(fertilizerconsumption+exports)
ExpandingWoodwardfacilityUANcapacityfrom300,000tonsto825,000tons
PositionsTerratotakeadvantageofcontinuedgrowthinUAN
UANhasbeenamongthefastest
growing
nitrogen
products
in
North
America
TerraEnvironmentalTechnologiesisfocusedonliquidureasalesintothefastgrowingenvironmentalsector
Source: Fertecon.
GreenMarkets MidCornbelt($perlbN) Chinaraisesexporttariffon
Ureato135%
StrongdemandfromIndiaandPakistantightensglobalsupply
Abnormaltradingactivityandunusualexportsprovokedbyongoingdelaysin
U.S.harvest/inventoryrestocking
Source: GreenMarkets. Source: HISCambridgeEnergyResearchAssociates;PlattsGasDailyhistoricaldata.
$0
$2
$4
$6
$8
$10
$12
$14
$16
Jan05 Jan08 Jan11 Jan14 Jan17 Jan20
CFs proposal premium is illusory
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61%
41%
28%
13%
7% 6%
Allcashtransactions
sinceLehmanfiling
Unsolicitedtransactions CFproposalnominal
premium
Fertilizerpeersmultiple
approach
Nitrogenpeersmultiple
approach
Historicaltrading
multipleapproach
CF sproposalpremiumisillusory
Source: SDCPlatinum,CFinvestorpresentationasof4/15/09.(1) IncludesclosedandpendingtransactionsfromSeptember15,2008 toNovember3,2009withU.S.targetsover$1billion. Allcashtransactionsincludedealswitha99%orgreatercashconsideration. Excludes
distressedtransactions.
Premium
based
upon
1day
prior
to
initial
announcement.
(2) IncludesclosedandpendingtransactionsfromJanuary1,2004to November3,2009withU.S.targetsover$1billion. UnsolicitedtransactionsincludeallsituationsasdefinedbySDCinwhich thetarget'sreactiontotheacquireruponinitialdisclosureofofferpriceiscategorizedasunsolicitedorhostile. Includesbothstockandcashtransactions. Premiumbasedupon1daypriortoinitialannouncement.
(3) CFsproposalbasedon$32.00pershare,0.1034xexchangeratio,andCFpriceof$83.25asof10/30/09. PremiumbasedonTerrasharepriceof$31.77asof10/30/09.
(1) (3)
(2)
Premiumto1dayTargets preannouncementclosingprice
PremiumtoTerrastheoreticalunaffectedsharepricesbasedon
historicaltrading
Thehighpremiumsinrecenttransactionsinvolvingcashreflectthepremiumsrequiredtocashoutinvestorsatthislowpointintheeconomiccycle.
CF
investor
presentationApril15,2009
CFs proposal values Terra at a significantly lower
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9.8x9.3x
8.3x7.7x 7.7x
5.9x
5.1x4.7x
8.4x
8.9x
3.0x
6.0x
9.0x
12.0x
PotashCorp Intrepid
Potash
ICL Yara K+S Incitec Pivot Mosaic Agrium Terra at
CF's latest
proposal
CF
(1)
(2)
CF sproposalvaluesTerraatasignificantlylower2010EEBITDAmultiplecomparedtopeers
Source: Publicfilings,FactSet.Note: Multiplesasof10/30/09andbasedonIBESconsensus.(1) BasedonTerrasenterprisevalueof$3,540mmperpage5ofCFsinvestorpresentationfiled11/4/09andTerras2010estimatedEBITDAof$694mm,perTerramanagement.
(2) Basedon
page
5of
CFs
investor
presentation
filed
11/4/09.
EV/2010EEBITDA
Precedent fertilizer transactions per CFs investor
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PrecedentfertilizertransactionsperCF sinvestorpresentation
Source: CFinvestorpresentationfiled11/4/09.
ThemeanNTMEBITDAmultipleofthethreerelevantcompletedprecedentfertilizer
transactions,as
quoted
by
CF,
is
7.6x
Priortothisyear,therewereonly
3relevant
precedent
transactions
intheglobalfertilizersectorthisdecade.Allothersectortransactionswereeitherverysmallorinvolvedbankruptcompanies
CFinvestorpresentation
November4,
2009
result in a significantly higher proposal price per
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resultinasignificantlyhigherproposalpricepershareforTerra
Source: CFinvestorpresentationfiled11/4/09.Note: EnterprisevalueadjustmentsandsharecountbasedonCFsinvestorpresentationfiled11/4/09.
BasedonthemultiplessuggestedinCFsinvestorpresentation,theimpliedpersharevalueforTerra,usingTerraManagementsestimated2010EBITDA,is
significantlyhigher
than
CFs
current
proposal
CFproposal2010EEBITDAmultiple 6.7x
Terra2010EEBITDA $694
Implied
enterprise
value $4,650
()Debt ($600)
(+)Cash 1,198
()Customerdeposits (41)
Impliedequityvalue $5,207
Dilutedsharesoutstanding 101
Implied
per
share
value $51.55
Asstated
by
CF,
the
proposal
EV/2010E
EBITDA
multiple
is
6.7x
and
the
average
EV/NTM
EBITDA
multipleforprecedentfertilizertransactionsis7.6x
ApplyingthesemultiplestoTerrasestimated2010EBITDAimpliesvaluessignificantlyhigherthan CFscurrentproposal
Impliedshare
price
based
on
CF
proposal
2010E
multiple
Precedentfertilizertransactions'NTM
EBITDAmultiple 7.6x
Terra2010EEBITDA $694
Implied
enterprise
value $5,274
()Debt ($600)
(+)Cash 1,198
()Customerdeposits (41)
Impliedequityvalue $5,831
Dilutedsharesoutstanding 101
Implied
per
share
value $57.74
Impliedsharepricebasedonaverageprecedent
fertilizertransactions NTM
multiple
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CF can significantly increase its proposal while
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CFcansignificantlyincreaseitsproposalwhilemaintaininganaccretivetransaction
CFhasstatedthatthetransactionissignificantlyaccretivetoCFstockholders
Based
on
CFs
current
proposal
and
Terras
2010E
EBITDA
estimate
of
$694
million,thetransactionisestimatedtobeover55%accretive(1) toCFsEPS
Terracalculatesthatevenat$58pershareprice,thetransactionwouldstillbeover20%accretive(1)
ThereissignificantadditionaldebtcapacityavailabletoCF
(1) Basedonmidpoint$120mmrunrateannualsynergies.
CFs proposal is inadequate and opportunistic
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CF sproposalisinadequateandopportunistic
CFsproposal
is
opportunistic
and
the
premium
is
illusory
CFsproposalvaluesTerraatasignificantlylower2010EEBITDAmultiple
compared
to
current
peer
trading
and
precedent
fertilizer
transaction
multiples
TerrashareholdersarenotreceivingadequatecompensationforthevalueofCFsestimatedsynergies
CFcansignificantlyincreaseitsproposalwhilemaintaininganaccretivetransaction
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Terras highly qualified and independent Board is
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Terra shighlyqualifiedandindependentBoardisfocusedondeliveringshareholdervalue
Terrahasanindependent,shareholderorientedBoard
TerrasBoardofDirectorshascarefullyandobjectivelyconsideredeachofCFsproposals
TerrasBoardofDirectorsandmanagementhavefocusedonbuildingTerrasmarketpositionanddeliveringshareholdervalue
TerrasDirectorsupforreelectionareexperienced,wellqualifiedBoardmembers
OtherTerra
Directors
are
also
adiverse
group
of
highly
qualified
leaders
Consistentandmeaningfulreturnofcashtoshareholders
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Terrahasanindependent,shareholderorientedBoard
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p ,
Boardcomposition
Terras
management
Terranominees
Diverse,high
caliber
group
of
Directors
with
significant
financial,
operational
and
strategic
experience
bothinandoutsideofagriculture,withahistoryofshareholderfriendlyactions
IndependentChairman,separatefromCEO
OnlyonememberofmanagementappointedtotheBoard
Appointedtwo
current
independent
Directors
based
on
shareholder input
NoDirectorisaffiliatedwithasignificantcustomerordistributor,asisthecasewithCF
Terraisledbyoneofthemostexperiencedmanagementteamsintheindustrywithdiversebackgroundsandextensivefertilizerindustryexperience
Theexecutiveofficersaveragemorethan15yearsofexperienceinthefertilizerindustry
MichaelBennett,PresidentandChiefExecutiveOfficer,hasbeen withtheCompanyfor36years
Notableexperienceinthepublicandprivatecompaniesinwhichtheyhaveheldseniorpositions
Extensiveexperienceacrossindustries,indepthknowledgeofenergymarketsincludingnaturalgas(thekeyTerrainput),internationalbusiness,financeandinvestments,andmanaginglarge,complexmergersandacquisitions
Consistentandmeaningfulreturnofcashto
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2.6%
3.9%
5.4%
28.4%
0.5%0.1%
8.4%
0.5%0.1% 0.0% 0.1%
3.2%
0.6% 0.4%
7.4%
0.4%0.4% 0.2%
0.5% 0.3%
2006 2007 2008 2009E
Terra CF Mosaic PotashCorp Agrium
gshareholders Since2006,twoyearsbeforeitspeersfollowedsuit,Terrahasconsistentlyreturnedcashtoitsshareholders.
Terracontinues
to
demonstrate
its
shareholder
friendly
approach
with
its
return
of
approximately
$750
millionofcashtoshareholdersthroughaspecialcashdividendtobepaidinDecember2009
Dividends+sharebuybacksasa%ofaveragemarketcap
Source: CompanyfilingsandFactSet.Note: 2009Ereflectsannualizedestimatesofdividendsandsharebuybacksbasedonprecedingreportedquarters.
Averagemarketcapitalizationcalculatedforeachrespectiveperiod.2009EreflectsaveragemarketcapitalizationYTDasof10/29/09.
PotashCorpspecialsharerepurchase
Includesdeclaredspecialcash
dividendof~$750million
CF$500millionsharerepurchase
program
Terraannouncedsharerepurchase
programofapproximately10%
ofoutstanding
commonstock
Includesannouncedspecialcash
dividendof
~$580
million
Whencashgenerationoutstrippedorganicgrowthopportunities,Terradidnot
hesitate
to
return
cash
to
shareholders
TerrasDirectorsupforreelectionareexperienced,
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wellqualifiedBoardmembers
HenrySlack
ChairmanoftheBoard
ServesasManagingMemberofQuarterwatch,LLC,afinancialadvisoryservicescompanysince2003
PreviouslyservedasCEOofMinorco,SA,aninternationalmining companythatmergedtoformAngloAmerican,from1991to1999
In1998Minorcoannouncedthedivestitureofits57%stakeinTerraaspartofamerger
agreementwith
Anglo
American
Corp.
PriortoTerradivestiture,participatedinthepurchaseoftheCourtrightplantandtheexpansionofthePortNealandWoodwardplants,whichTerracontinuestooperatetoday
AcquiredassetsinU.K.in1997andsolddistributionbusinessin1999
MarthaHesse
Served
as
Chairman
of
the
U.S.
Federal
Energy
Regulatory
Commission
from
1986
to
1989 ChiefBusinessOfficer(AssistantSecretaryManagementandAdministration),U.S.DepartmentofEnergy
1982to1986
Founded,ownedandwasPresidentandCEOofHesseGasCompanyfrom1992to2003
CurrentlyservesasChairmanoftheBoardofEnbridgeEnergyCompany,Inc.andDirectorofAMECplc
Verydeepknowledgeofthenaturalgasindustry,whichisthekeyinputforTerra
DennisMcGlone
Appointedbasedonshareholderinput
ServedasPresident/COO,President/CEOandDirectorofCopperweldCorp.,amajorNorthAmericanproducerofsteeltubingandfabricatedtubularproducts,from2002to2005
PriortoCopperweld,servedasVPandCorporateOfficerforArmcoInc./AKSteel,aleadingU.S.producerandinternationalmarketerofsteelproducts,from1996 to2001
OtherTerraDirectorsarealsoadiversegroupofhighly
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qualifiedleaders
DirectorofFalconOil&GasLtd.andcurrentChairmanofitsAuditCommittee
Servesas
the
Chairman
of
Real
Associates
Limited,
aprivate
company
which
invests
in
commercial
andresidentialpropertyprincipallylocatedinScandinavia
Over25yearsexperienceinthenaturalresourcesandextractive industries
ServedasFinanceDirectorofMinorcoSA,aninternationalminingcompany,from1992until1999
PresidentofSackettPartnersIncorporated,aconsultingcompany heestablishedin2000
Has
a27
year
career
in
investment
banking;
was
General
Partner
of
Lazard Frres
&
Co.,
and
ManagingDirectorandGroupExecutivewithTheChaseManhattanBank,nowJPMorganChase
ServesasChairmanoftheAuditCommitteesofbothSmithInternationalandForestOil
ServedasChairman,ChiefExecutiveOfficerandDirectorofAMEC Inc.from2000to2002andasPresidentandChiefExecutiveOfficerofAgraInc.(whichwassoldtoAMECin2000)
ServesasaDirectorofTeekayCorporation,aproviderofinternationalcrudeoilandpetroleumproduct
transportation
services
ServedasDirectorofTembecIndustriesInc.andofATSAutomationToolingSystemsInc.
Appointedbasedonshareholderinput
ServedasChiefFinancialOfficerandChiefInvestmentOfficerforEnduranceSpecialtyHoldingsLtd.ServedasaDirectorofEndurancefrom2002to2003
ServedasaDirectorofUnitedAmericaIndemnity,Ltd.,aspecialtypropertyandcasualtyinsurer,since2007,andservesasChairmanofitsInvestmentCommitteeandamemberofitsAuditCommittee
David
Fisher
Dod
Fraser
PeterJanson
JamesKroner
Board
member
and
Chief
Executive
Officer
HasbeenwiththeCompanyfor36yearsandisalsothePresident andChairmanoftheBoardofTerraNitrogenGPInc.
ServesasaDirectorofAlliantEnergyCorporationandtwoofitssubsidiaries
Michael
Bennett
TerrasBoardofDirectorshascarefullyandobjectively
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consideredeachofCFsproposals
TerrasBoardofDirectorshascarefullyreviewedeachofCFsproposalsandhasconsistentlyconcludedthatacombinationwithCFisnotfinanciallycompellingandlacksstrategiclogic
Overthecourseofthisyear,CFhasmade6separateproposals
At
the
Boards
direction,
Terra
as
well
as
its
representatives
and
advisors
have
met
with
CF
and
its
representativesandadvisors
TerrasBoardandmanagementalsoknowCFsassets,strategyandmanagementverywellbasedonpreviousdiscussionswithCF
In2004,TerradecidedtopursuetheacquisitionofMississippiChemicalinstead
In2007,CFinitiateddiscussionswithTerra,whichTerradecidednottopursue
EachtimetheBoardhasconcludedthattheindustrialandstrategiclogicofacombinationwithCFwasnotcompellingandthevaluepropositionwasinsufficienttomeritfurtherdiscussions
CFsproposal
on
November
1,
2009
represents
approximately
$2.00
increase
in
notional
value
over
its
previousproposal
Terracalculatesthatevenat$58pershareprice,thetransactionwouldstillbeover20%accretive,basedontheestimatemidpoint$120millionannualsynergiesthatCFassertsareavailabletothecombinedcompany
Conclusion
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Terraisastronginvestmentpropositionwitharobustneartermoutlook
and
solid
long
term
prospects
CF/Terracombinationlackscompellingstrategicrationale
CFsproposalisinadequateandopportunistic
TerrashighlyqualifiedandindependentBoardisfocusedondeliveringshareholdervalue
VoteforTerrasDirectorsontheWHITEProxyCardtoday
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Title
SubTitle
TerraIndustries
Inc.
SupplyingIndustry CleaningtheAir FeedingtheWorld
43
Appendix
DerivationofestimatedunaffectedTerrashareprice
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Terratradedata22%and13%discounttofertilizerpeersandnitrogenpeers,respectively,onanNTMEV/EBITDAmultiplebasisoverthethreeyearperiodendingJanuary15,2009.Applyingthisdiscounttothecurrent2010EEBITDAfertilizerpeerandnitrogenpeermultiples,arangeofimpliedunaffectedmultiplesforTerracanbedetermined
TerratradedatanaverageNTMEV/EBITDAmultipleof7.1xforthethreeyearperiodendingJanuary15,2009
Theunaffected
Terra
share
price
can
be
derived
from
these
multiples
2010E EBITDA (IBES)(1)
Discount to Implied Unaffected Premium /
peers multiple price (Discount)(2)
Discount to fertilizer peers (3)
3-year average ending 1/15/2009 (22%) 6.7x $35.85 13%
Discount to nitrogen peers(4)
3-year average ending 1/15/2009 (13%) 7.1x $37.80 7%
Terra's historical trading multiple
3-year average ending 1/15/2009 NA 7.1x $38.18 6%
Source: Public filings, FactSet and IBES.
(1) Based on Terra's 2010E EBITDA of $504mm, per IBES.
(2) Based on CF's proposal price of $40.61, and CF's closing stock price of $83.25 as of 10/30/2009.
(3) Fertilizer peers include Incitec Pivot, Intrepid Potash, Israel Chemicals, K+S, Mosaic, PotashCorp and Yara.
(4) Nitrogen peers include Incitec Pivot and Yara.
Terra Salesvolumeandpricesandgascosts
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FiscalyearendingDecember31, 9MoEnded Projected
2006 2007 2008 9/30/2009 2010ESalesvolumes('000stons)
AnhydrousAmmonia 1,628 1,765 1,670 1,177 1,640
UAN32%BASIS 3,408 4,072 3,919 2,361 3,600
Urea 244 247 249 215 350
Ammoniumnitrate 769 968 990 650 950
Sales
prices
($/ton)
(1)
AnhydrousAmmonia $313 $337 $552 $314 $377
UAN32%BASIS 160 226 335 214 234
Urea 269 333 467 309 324
Ammoniumnitrate 203 224 309 204 231
GascostsNorthAmerica(excluding Trinidad)(2)
CostpermmBtu $7.03 $7.08 $9.33 $4.98 $5.27Source: Terra
management.
(1) Afterdeductingoutboundfreightcosts.(2) Includesderivativecosts.
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Keydates
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January15,2009: CFmadeanunsolicitedoffertoacquireTerraat0.4235CFsharesforeachshareofTerra
January26,2009:TerrasBoardofDirectorsheldameetingtoconsiderCFsJanuary15offer
January28,2009:TerrasBoardofDirectorsunanimouslyrejectedCFsunsolicitedoffer
February3,2009: CFdeliverednoticetoTerrathatitwillnominatethreenomineesforelectiontoTerrasBoardat
Terras
annual
meeting
of
shareholders
February9,2009:TerrasCEOmetwithCFsCEO,togetherwithadvisors
February23,2009: CFannouncedthecommencementofanexchangeofferforallofTerrasoutstandingsharesatafixedexchangeratioof0.4235CFsharesforeachshareofTerra
March5,
2009:
Terras
Board
of
Directors
unanimously
recommended
that
shareholders
reject
CFs
offer
March9,2009: CFannouncedarevisedproposalbasedonanexchangeratioof$27.50foreachTerrashare,withanexchangeratioofnotlessthan0.4129andnotmorethan0.4539CFsharesforeachshareofTerra;CFalsoannounceditwaspreparedtoissueparticipatingpreferredstocktoavoidobtainingCFshareholderapproval
March11,
2009:
Terras
Board
of
Directors
held
ameeting
to
consider
CFs
March
9proposal
and
rejected
CFs
revised
proposal
March23,2009: CFreviseditsproposalforTerrabasedonanexchangeratioof$30.50foreachTerrashare,withthesameexchangeratioofnotlessthan0.4129andnotmorethan0.4539CFsharesforeachshareofTerra
March24,2009: TerrasBoardofDirectorsheldameetingtoconsiderCFsMarch23proposalandrejectedCFs
revisedproposal
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