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Yara International of Norway, the world's biggest mineral fertiliser producer, said Monday it made a cash offer of 4.1 billion dollars (3.0 billion euros) for US firm Terra Industries.
The move signals an attempt by Yara to become a North American giant and a new transatlantic leader in the fertiliser business.
"The new company will be the major domestic player in North America in combination with being the largest importer (of fertilisers), which is Yara's position today," Yara's chief financial officer Hallgeir Storvik said in a presentation Monday.
"The company will have by far the highest market share in North America at around 30 percent," he added.
The merger has been approved by both company's boards.
The offer is expected to be partly financed by issuing shares worth between 2.0 to 2.5 billion dollars.
The rights issue has been approved by the major shareholders, including the Norwegian government which has a 36.21 percent stake in the group, Yara said.
At just over 41 dollars per share, the offer is 23.6 percent over the closing price of Terra shares on Friday, Yara said.
"Yara and Terra are a perfect fit, and the combination will elevate Yara to a truly global leader in the industry. Both companies are strong in ammonia and nitrates, and have complementary geographical footprints," Yara's chief executive Joergen Ole Haslestad said.
The takeover was announced along with Yara's annual and quarterly earnings.
In 2009, a difficult year for the fertiliser industry, Yara's net profit fell by more than 50 percent to 3.8 billion kroner (469 million euros, 642 million dollars) from 8.2 billion kroner a year earlier.
The Norwegian company's annual sales meanwhile fell 30.8 percent to 60.9 billion kroner.
In the fourth quarter alone, Yara renewed with profits, earning 1.4 billion kroner compared to a loss of 2.1 billion in the same quarter a year earlier.
"Our underlying fourth quarter results were non-satisfactory," Haslestad said, however stressing "major improvements in the fertiliser market towards the end of the fourth quarter."
But on Monday, it was the Terra purchase, not company earnings, that were in the spotlight.
The planned share issue dragged down Yara 5.48 percent to 229.2 kroner at 1130 GMT on a flat Oslo Stock Exchange.
Fondsfinans analyst Per Haagensen told Dow Jones Newswires that shares fell due to uncertainty surrounding the price for the rights, but that "the transaction makes sense, there is no question about that."
The Norwegian state said it would participate in the share issue with up to 5.4 billion kroner.
Norway's National Insurance Fund, Yara's second largest shareholder with 6.57 percent will also back the operation.
Terra currently owns and operates six nitrogen manufacturing facilities in North America and owns a 50 percent interest in joint ventures in Trinidad and the UK.
The takeover comes amid increasing consolidation in the fertiliser sector. Until January, CF Industries of the US, itself the target of Canadian group Agrium, was trying to take over Terra but renounced.
Yara said on January 29 it was selling 15.5 percent of its stake in Brazilian Fosfertil to the country's mining giant Vale.
