CF Scraps $8B Deal Due to New Inversion Rules

The fertilizer company says the U.S. crackdown on tax inversions had reduced the benefits of its proposed merger with OCI NV.
Matthew HellerMay 23, 2016

U.S. fertilizer manufacturer CF Industries said Monday it had scrapped an $8 billion merger with Dutch rival OCI NV, citing U.S. efforts to curtail tax-inversion deals.

The merger would have combined CF Industries with OCI’s European and North American operations and a global distribution business to create the world’s largest publicly traded nitrogen company. It was structured so that CF Industries would become a subsidiary of a new holding company based in Britain, providing tax benefits because of the U.K.’s lower corporate tax rate.

But in announcing the demise of the deal, CF said U.S. regulators’ crackdown on inversions had reduced those benefits and they were unable to restructure the transaction so it would be attractive to their shareholders.

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“Although the original deal created significant value for both parties, changes in the regulatory and commercial environments forced us to re-evaluate the combination and led us to the conclusion that terminating the agreement is in the best interests of CF Industries and its shareholders,” CF Industries CEO Tony Will said in a news release.

CF will pay a termination fee of $150 million. In trading Monday, the company’s shares were up more than 6%, at $30.36.

As The New York Times reports, inversions “have gained popularity in recent years as American companies look to lower their corporate tax rates and more easily use income that has been held in foreign subsidiaries. But those deals have faced a pushback from the United States government.”

In April, the Treasury Department, in conjunction with the Internal Revenue Service, announced new rules to restrict the practice. Since then, deals including Pfizer’s $152 billion merger with Allergan have fallen apart.

CF Industries’ deal with OCI, which was announced in August, would have generated about $500 million in after-tax cost savings. Will described it at the time as “a terrific opportunity for the shareholders of both companies.”

OCI’s chief executive, Nassef Sawaris, on Monday did not rule out some future combination. “I think we can investigate alternative ways of future cooperation or structures to create value for our respective shareholders,” he said.