CF Industries Holdings announced today that it has agreed with Yara International ASA to acquire its 50 percent equity interest in GrowHow UK Limited for total cash consideration of $580 million, making GrowHow a wholly owned subsidiary. At closing, the GrowHow business will be consolidated into CF Industries with a cash free, debt free balance sheet. GrowHow owns and operates nitrogen production facilities in Ince and Billingham, U.K.
“We are pleased to announce this agreement to acquire Yara’s interest in GrowHow,” commented Tony Will, president and chief executive officer, CF Industries Holdings, Inc. “The operations have an advantaged position in an import-dependent region. We know GrowHow well and expect a mid-teens return profile for the acquisition. The purchase of the remaining interest in GrowHow is a continuation of CF Industries’ track record of pursuing shareholder value-creating capital deployment.”
The Ince facility is located in northwestern England and consists of an ammonia plant, three nitric acid plants, an ammonium nitrate (AN) plant and three NPK fertilizer compound plants. The Billingham facility is located in the Teesside chemical area in northeastern England, and consists of an ammonia plant, three nitric acid plants, a carbon dioxide plant and an AN fertilizer plant. Combined, the two facilities have the capacity to produce approximately 0.9 million short tons of gross ammonia, 1.2 million short tons of AN and 0.4 million short tons of NPK compounds.
As of May 31, 2015, prior to purchase accounting and on a U.S. GAAP basis, GrowHow had total inventories of £66 million, receivables of £41 million, and fixed assets of £195 million. The company also had current liabilities of £43 million, long-term payables of £14 million, and a net pension deficit of £90 million.
The U.K. is dependent on imports of nitrogen to meet its consumption demands. Nitrogen imports primarily consist of AN and urea with ammonia accounting for a negligible portion of imports. Currently, imports of AN to the U.K. make up approximately 45% (700,000 short tons) of supply. Additionally, U.K. natural gas costs have fallen meaningfully along with oil prices. In terms of delivered cost of AN to the U.K., GrowHow is positioned at the low end of the U.K. supply curve.
CF Industries has extensive knowledge of and familiarity with the GrowHow business as a result of its involvement with the GrowHow joint venture over the last five years. Earnings from CF Industries’ 50 percent interest in GrowHow are currently included in CF Industries’ financial statements under Equity in Earnings of Non-Operating Affiliates – Net of Taxes. Following the closing of the acquisition of the outstanding interests, the results will be included in CF Industries’ consolidated results. The final purchase price is subject to closing adjustments. The completion of the transaction is subject to customary closing conditions and is expected to occur later this year.