CF Industries Holdings, Inc. and CHS Inc. announced that they have agreed to enter into a strategic venture. CHS, the nation’s leading farmer-owned cooperative, will make an equity investment in a wholly owned CF subsidiary and also enter into a supply agreement. Under the supply agreement, CHS will be entitled to purchase annually up to a total of 1.7 million tons of UAN and urea at market prices. CHS will purchase a minority equity interest in CF Industries Nitrogen, LLC (“CF Nitrogen”) for $2.8 billion and be entitled to semi-annual profit distributions from CF Nitrogen.

CF Nitrogen currently owns three production facilities in the United States: Donaldsonville, Louisiana; Port Neal, Iowa; and Yazoo City, Mississippi. CF also expects to contribute its Woodward, Oklahoma, plant to the LLC prior to the transaction closing. CF will continue to manage and operate all production facilities.

“This venture represents tremendous strategic value to both CF Industries and CHS,” said Tony Will, president and chief executive officer, CF Industries Holdings, Inc. “In the past, we have entered into long-term relationships with industry leaders Mosaic and Orica, and this venture with CHS, an industry leader in agriculture, is the logical next step. This transaction matches us with a reliable partner that will take ratable delivery of product across the year, supported by an attractive valuation.”

“Entering nitrogen fertilizer manufacturing through the purchase of a minority ownership in CF Nitrogen is the single largest investment in CHS history,” said Carl Casale, president and chief executive officer, CHS Inc. “This positions CHS and our owners for long-term dependable fertilizer supply, supply chain efficiency and economic value. In addition, the ability to source product from CF Nitrogen production facilities under our supply agreement benefits our owners and customers through strategically positioned access to essential fertilizer products.”

Once the capacity expansion projects are completed at Donaldsonville and Port Neal, CF will have total production of 18.9 million product tons, not including the new capacity from the business combination with OCI N.V. Of that total 18.9 million tons, CHS will have the right to purchase up to 1.7 million tons, or about 8.9 percent of CF Industries’ total production capacity. CHS, a major CF customer and knowledgeable industry leader, is making a $2.8 billion investment for approximately 8.9 percent of CF’s total system capacity.

CF Nitrogen will sell annually to CHS up to 1.1 million tons of granular urea and 580,000 tons of UAN, at market prices. The 1.7 million tons available under the supply agreement have an average gross margin that reflects the average gross margin across the entire CF system.

CHS’s semi-annual profit distributions from CF Nitrogen will be based generally on the volume of granular urea and UAN purchased by CHS pursuant to the supply agreement.

The transaction is expected to close February 1, 2016, or earlier by mutual consent, subject to satisfaction of certain conditions.

Morgan Stanley & Co. LLC and Goldman, Sachs & Co. are serving as financial advisors to CF Industries on the transaction. Skadden, Arps, Slate, Meagher & Flom LLP is acting as its legal advisor. Kirkland & Ellis LLP is acting as its tax advisor. Baker & McKenzie LLP is acting as legal advisor to CHS on the transaction.