Terra (TRA) Sends Letter to Shareholders: 'Don't Let CF Industries Take Control of Terra'

November 5, 2009 7:37 AM EST

Terra Industries Inc. (NYSE: TRA) today announced that it has sent a letter to shareholders.

The full text of the letter follows:

DON'T LET CF INDUSTRIES TAKE CONTROL OF TERRA

WITHOUT PAYING FULL AND FAIR VALUE FOR YOUR INVESTMENT

November 5, 2009

Dear Fellow Terra Shareholder:

Since January 2009, CF Industries Holdings, Inc. ("CF") has made six separate proposals to acquire Terra, each of which was unanimously rejected by your Board of Directors as not in the best interests of Terra shareholders.

CF's latest proposal is financially inadequate, even by applying valuation methodologies used by CF, and is only $2.00 per share more than the nominal value of its prior proposal. In addition, the cash component of CF's latest proposal includes approximately $750 million of your own money - the special cash dividend of $7.50 per share which Terra's Board announced in September and will pay you in December.

We urge you to reject CF's efforts to advance its inadequate and opportunistic merger proposal. Do not support CF's nominees at Terra's Annual Meeting, scheduled for November 20, 2009, and do not sign any CF blue proxy card.

Protect your investment in Terra by voting the WHITE proxy card FOR Terra's highly-qualified and experienced independent directors - Martha O. Hesse, Dennis McGlone, and Chairman, Henry R. Slack.

CF'S LATEST PROPOSAL IS INADEQUATE, OPPORTUNISTIC AND

NOT IN THE BEST INTERESTS OF TERRA AND ITS SHAREHOLDERS

In rejecting CF's November 1, 2009 proposal to acquire Terra for the equivalent of $24.50 in cash (which equals the net value of CF's announced proposal of $32.00 that will be reduced by Terra's previously declared $7.50 per share special cash dividend) and 0.1034 of a share of CF common stock, your Board considered a number of factors, including the following:

-- CF's proposal significantly undervalues Terra's robust near- and
long-term prospects, as illustrated by the following:
o In its November 2, 2009 presentation, CF justifies its inadequate
proposal using a 2010 EBITDA estimate for Terra of $525 million, which
is significantly less than Terra's projection of approximately $694
million.
o Using CF's own proposed multiple of 6.7x1, Terra's projected 2010
EBITDA would indicate an enterprise value of $4.65 billion. Applying
CF's own adjustments, this would imply an equity value of $51.55 per
share for Terra.
o Alternatively, using CF's mean Next Twelve Months EBITDA industry
acquisition multiple of 7.6x2 would imply an enterprise value of
approximately $5.27 billion for Terra. Applying CF's own adjustments,
this would imply an equity value of $57.74 per share for Terra, a
price which would still be substantially accretive to CF.
o Your Board believes that Terra's premier facilities and assets would
cost significantly more to replace than what CF is proposing to pay
for Terra. As long-term capital intensive projects have become more
challenging for industry participants and new entrants to undertake,
the "scarcity value" of Terra's facilities and assets is an important
element of value that deserves appropriate compensation from CF. This
value proposition can be illustrated by CF's own proposed $2 billion
investment in the highly capital intensive and risky greenfield
project in Peru, which is likely to be cash flow negative for many
years.
-- CF's proposal includes $750 million of Terra shareholders' own
money.Your Board recently declared a $7.50 per share special cash
dividend that will be paid in December 2009. By including in its cash
consideration the amount of this special dividend, CF is essentially
"offering" you money to which you are already entitled as a Terra
shareholder.


TERRA IS WELL-POSITIONED FOR LONG-TERM GROWTH AND PROFITABILITY

We are confident that the continued execution of our focused and prudent strategy will produce greater value for Terra's shareholders than CF's latest proposal. Terra is a preeminent "pure play" nitrogen company that is poised to take advantage of an upsurge in demand from our agricultural and industrial customer base as the economic recovery continues.

-- Terra has a robust near-term outlook.With strong U.S. agricultural
nitrogen demand and moderate gas costs expected, we expect the coming
growing season will be an excellent one for Terra.
o Terra's projected operating improvements in 2010, specifically revenue
growth of more than 25% over 2009 and robust operating margins, would
result in EBITDA of approximately $694 million for the year.
o Terra's focus on higher margin and higher growth nitrogen products,
including UAN, which has been among the fastest growing nitrogen
products in the United States, leaves Terra well-positioned to benefit
from strengthening prices. Analysts have forecast that UAN prices will
appreciate in the near-term to better reflect its value to the
end-user.3 In anticipation of UAN's continued growth and rebound in
pricing, Terra is currently expanding its Woodward facility to nearly
triple UAN capacity at that facility.
o Analysts have forecast higher nitrogen prices in the Cornbelt in 2010
in response to increasing costs for European competitors and a return
to historical premium pricing of Cornbelt ammonia.4Terra's geographic
advantages position us to benefit from this premium pricing as
approximately 65% of Terra's total North American ammonia production
volume is located inland or in gas advantaged regions.
-- Your Board and management team are executing on a strategy that has and
will continue to drive shareholder value.
o Your Board has consistently delivered value to Terra shareholders. In
fact, during the past four years, Terra has returned to Terra
shareholders in the form of share buybacks and dividends more than $1
billion -representing more than 100% of Terra's net income for the
15-quarter period ending September 30, 2009. This includes the $7.50
per share special cash dividend ($1.00 to $1.50 of which is estimated
as a tax-free return of capital).
o Terra has oriented its product mix to serve its core agricultural
customers while also taking advantage of opportunities in industrial
markets, which represent 29% of our business. In particular, there is
significant upside in Terra's leading Environmental Technologies
business. By 2015, one product line of this business, DEF, is expected
to produce $400-500 million in new annual revenues.
o Terra will continue to make strategic bolt-on acquisitions that build
shareholder value. For example, Terra recently announced an agreement
to purchase a 50% interest in Agrium's Carseland, Alberta nitrogen
manufacturing facility. This acquisition would add a strong existing
asset to Terra's production portfolio at an attractive price and
contribute accretive earnings in the first year.


DON'T VOTE FOR CF'S ATTEMPT TO PLACE THREE DIRECTORS ON YOUR BOARD

PROTECT THE VALUE OF YOUR INVESTMENT - VOTE YOUR WHITE PROXY CARD TODAY

We see CF's latest proposal as nothing more than a desperate attempt to gain your support for its nominees at the upcoming Annual Meeting. We believe that CF's nominees, if elected, would work to advance CF's interests and its inadequate proposal at the expense of Terra shareholders.

Your Board remains vigilant in the oversight of its fiduciary duties to you, the true owners of Terra, and remains open to considering any bona fide opportunity that creates meaningful value for all Terra shareholders.

RE-ELECT TERRA'S DIRECTORS WHO ARE COMMITTED

TO CONTINUING TO ACT IN THE BEST INTERESTS OF ALL TERRA SHAREHOLDERS

Your vote is IMPORTANT no matter how many shares you own. Please vote TODAY by telephone, Internet or by signing, dating and returning the enclosed WHITE proxy card. A postage-paid envelope is provided for your convenience. We urge you to discard any blue proxy card you may receive from CF.

If you have any questions concerning CF's proposal or need additional copies of Terra's publicly-filed materials, please contact MacKenzie Partners, Inc. at (800) 322-2885 (Toll-Free) or at (212) 929-5500 (Collect).

We appreciate your continued support.

Sincerely,

/s/ Michael L. Bennett /s/ Henry R. Slack

Michael L. Bennett Henry R. Slack

President and Chief Executive Officer Chairman of the Board

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