Nitrogen: CHS Taps Into CF’s Capacity With $2.8B Deal

Anhydrous Application. Photo by Ross Birkenfeld

CF Industries Holdings, Inc. and CHS Inc. announced today that they have agreed to enter into a strategic venture. CHS will make an equity investment in a wholly owned CF subsidiary and also enter into a supply agreement that guarantees CHS additional nitrogen tonnage.

Under the supply agreement, CHS will be entitled to purchase annually up to a total of 1.7 million tons of UAN and urea at market prices. CHS will purchase a minority equity interest in CF Industries Nitrogen, LLC (“CF Nitrogen”) for $2.8 billion and be entitled to semi-annual profit distributions from CF Nitrogen.

CF Nitrogen currently owns three production facilities in the United States: Donaldsonville, Louisiana; Port Neal, Iowa; and Yazoo City, 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.

With the deal, CHS will cancel plans to build a $3 billion fertilizer plant in southeastern North Dakota.

“Entering nitrogen fertilizer manufacturing through the purchase of a minority ownership in CF Nitrogen is the single largest investment in CHS history,” said Carl Casale, president and chief executive officer, CHS Inc. “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.”

Once the capacity expansion projects are completed at Donaldsonville and Port Neal, CF will have total production of 18.9 million product tons, not including 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 customer and knowledgeable industry leader, is making a $2.8 billion investment for approximately 8.9 percent 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 February 1, 2016, or earlier by mutual consent, subject to satisfaction of certain conditions.


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