Yara International ASA (ADR) (YARIY) and CF Industries Holdings, Inc. (CF) are reportedly discussing a merger deal, a move that could create the world’s largest nutrient producer. If the deal is executed, the merged entity will have a market capitalization of around $27 billion, and could become a dominant group in the $100 billion nitrogen market.
The deal comes in the wake of the US shale gas boom, which is allowing fertilizer producers to benefit from cheaper shale gas. Nitrogen crop nutrient producers in the country have seen significant improvements in their financial results because of the US shale gas boom.
CF Industries had a gross margin of around 52% in its nitrogen fertilizer segment last year, compared to its phosphates division’s gross margin of 9.4%. Both companies are leading players in the nitrogen fertilizer industry.
The US fertilizer producers are also benefiting from the decline in oil and natural gas prices resulting from the ban on exporting crude and inadequate liquefied natural gas facilities.
The Norwegian company, Yara, is the world’s largest nitrogen producer in terms of market share. However, it failed to compete with CF Industries in terms of acquiring Terra Nitrogen Company, L.P. (TNH), another nitrogen fertilizer producer in the US. CF Industries bought Terra for $4.7 billion in March 2010.