CF Industries Holdings, Inc. Merger Could Form World's Second-Largest Fertilizer Firm

CF Industries Holdings, Inc. CF confirmed preliminary talks with Yara International ASA YARIY regarding a merger of equals that would form the world's second-largest fertilizer company.

Combined, the two companies would boast a market capitalization of nearly $27 billion, exceeded in size in the sector only by the $28.9 billion Potash Corp./Saskatchewan POT.

In over-the-counter trading Tuesday, Yara gained nearly 6 percent, while CF ticked up 5.2 percent on the New York Stock Exchange. Other companies in the sector were generally up by 1 percent or less.

Approval of the merger may require the assent of a divided parliament in Norway, where the government holds a 36-percent in Oslo-based Yara. Reuters reported that most Norwegian parties favor a deal if the companies' combined headquarters remain in Norway.

Bidding wars are unlikely to break out because Yara and CF are the world's two largest nitrogen producers, an analyst told the U.K.'s Daily Mail.

"In terms of revenues, Yara has the highest revenues but the lower margin, while CF has higher margin and lower revenues," Per Haagensen, an analyst at RS Platou Markets said. "It seems to me that it is a pretty fair merger of equals."

Cheap natural gas supplies in the U.S. enables CF to operate at a lower cost.

"At first glance, we view any future deal as positive for Yara," JP Morgan said in a note. "A deal would diversify the company's cost base away from Europe – which remains one of the most expensive production regions."