OCI OCI NV

By Ian Walker 

Fertilizer maker CF Industries Holdings Inc. and Dutch rival OCI NV called off their planned $8 billion fertilizer merger, the latest multibillion-dollar transaction to fall foul of changes to U.S. tax rules designed to restrict so-called inversion deals.

The two companies said they were unable to come up with a structure for the deal to combine CF with OCI's distribution operations that would create value for both sets of shareholders, citing a tougher regulatory and commercial environment in a joint statement on Monday.

"The [U.S.] Treasury announcement on April 4, 2016 materially reduced the structural synergies of the combination," the companies said.

CF of Deefield, Ill., is one of the world's largest manufacturers and distributors of nitrogen fertilizers used for agricultural purposes while OCI--which operates in Egypt, Algeria, the Netherlands and the U.S.--makes natural-gas-based fertilizers and industrial chemicals.

When the deal was signed last August, CF said it would lower its overall tax rate to 20% from 34% by moving its address to the U.K. In the Netherlands, the corporate tax rate is 25%.

The companies subsequently agreed in December to move the tax residency of the combined company to the Netherlands to satisfy tougher inversion rules put in place last November by the U.S. Treasury.

The Treasury toughened its rules again last month. Among the consequences of the changes are the rules that would end a strategy used by companies to repatriate foreign profits without paying U.S. taxes.

Inversions had helped drive mergers-and-acquisitions activity to record highs as U.S. companies have looked to foreign deal making to make tax savings.

At the same time, consolidation has intensified in the agrochemicals sector. Germany's Bayer AG has made an unsolicited $62 billion bid for seeds supplier Monsanto Co. Swiss pesticide and seeds company Syngenta AG agreed to a $43 billion takeover by China National Chemical Corp., known as ChemChina, earlier this year.

"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." said CF Industries President and Chief Executive Tony Will.

OCI Chief Executive Nassef Sawiris said: "The level of goodwill and collaboration between the two companies has been positive at all levels of management since our discussions started last year, which leads me to believe that in the future we can explore alternative ways of collaboration or structures to create value for our respective shareholders."

CF Industries will have to pay a $150 million break fee to OCI.

The failed merger is another deal-making setback for CF Industries. The company held merger talks with Norway's Yara International ASA in 2014 to create the world's largest nitrogen-fertilizer company. The talks fell apart as the two sides failed to agree on terms.

Write to Ian Walker at ian.walker@wsj.com

(END) Dow Jones Newswires

May 23, 2016 06:15 ET (10:15 GMT)

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