Farmland agrees to sell fertilizer business to Koch Nitrogen

The Kansas City Star Posted on Fri, Mar. 28, 2003 By ERIC PALMER

After an auction lasting 51 rounds, Farmland Industries struck a deal valued at $293 million to sell the bulk of its fertilizer business to Koch Nitrogen of Wichita.

Farmland also agreed to sell an idled plant in Pollack, La., to Vanguard Biosynfuels for $2 million.

The $293 million that Koch will pay in cash and assumed debt includes $171 million for the U.S. fertilizer business and $122 million for Farmland's 50 percent interest in a fertilizer plant in the Republic of Trinidad and Tobago.

That is $23 million more than Koch offered for Farmland's domestic and international fertilizer business in a negotiated deal last month. That deal would have been approved if another bidder had not materialized.

And it is $113 million more than Koch initially said it might pay for the business when it first notified Farmland of its interest last year, an offer Farmland had waved aside as "lowball."

On Monday, Canadian fertilizer producer Agrium announced that it intended to bid on Farmland's U.S. fertilizer operations, which are among the largest in the United States, with about $1 billion in sales. In bidding that lasted until late in the evening Wednesday, Koch outbid Agrium. Agrium did not bid on the Trinidad plant.

Farmland released the results of the auction after tacking down some details Thursday.

"We're pleased with the results of the auction, which increased the value over $25 million," Stan Riemann, Farmland's executive vice president of crop production, said after the sale. "While no longer a core business for Farmland, the sale of these valued assets is pivotal to our successful reorganization."

The Kansas City farm cooperative filed for bankruptcy protection May 31 after a liquidity crisis that was caused partly by high costs and weak sales of fertilizer last year. According to court documents, the proceeds from the sale are pledged to Farmland's banks, to which Farmland owes about $278 million.

Koch Nitrogen is a unit of Koch Industries, a Wichita-based, privately owned international conglomerate. Koch Nitrogen has one fertilizer plant in Louisiana and 15 distribution terminals in the corn belt. It also has marketing agreements and investments in facilities in Trinidad and Venezuela.

The deal, which requires bankruptcy court approval, includes a dozen fertilizer distribution terminals in Kansas, Nebraska, Oklahoma, Minnesota, Iowa, Texas and Illinois. The sale also involves plants in Dodge City, Kan.; Fort Dodge, Iowa; Enid, Okla.; and Beatrice, Neb.

About 335 employees work in the U.S. operations and 81 in Trinidad, according to Farmland spokeswoman Sherlyn Manson.

At Farmland's request, Koch did not bid on Farmland's newest plant in Coffeyville, Kan., which is fueled by petroleum coke, a byproduct from Farmland's petroleum refinery next door, Manson said. Most nitrogen fertilizer plants use natural gas, which is generally much more expensive.

Farmland built that plant under a lease-to-buy agreement and bought it a year ago for $260 million. It initially had some operational problems and is the subject of litigation between Farmland and the engineering firm on the project, Black & Veatch.

Manson said the plant is operating very efficiently.

"We asked Koch to take the Coffeyville plant out of their bid to give us more time to market it in a packaged deal with the refinery and get more value for it," Manson said.

Farmland has a fertilizer terminal in Hastings, Neb., which it is negotiating to sell, and it continues to try to find a buyer for a mothballed plant in Lawrence.

Riemann said last month that the fertilizer business was seeing an operational profit. That comes, however, after significant losses as foreign competition has depressed the price of fertilizer in the United States. Farmland booked a $10.7 million operating loss from its fertilizer operations in the first quarter, which ended Nov. 30. It lost $42 million in the first quarter of last year.

Farmland also wrote down the book value of its fertilizer business last quarter by about $276 million. Most of that write-down was attributed to the Coffeyville plant, chief executive Robert Terry said at the time.

To reach Eric Palmer, regional business editor, call (816) 234-4335 or send e-mail to epalmer@kcstar.com.