Norway's Yara agreed on Monday to buy Terra Industries for $4.1 billion to create a world leading fertilizer producer and boost its U.S. presence, as rivals look to join forces to gain size and reach.

Last month U.S.-based CF Industries Holdings withdrew its year-long hostile bid to buy Terra. That battle, along with other acquisitions and M&A rumors have kept the fertilizer sector in the investor spotlight, despite a sharp fall in prices last year as the global economic crisis hit.

Analysts and producers expect a major rebound in demand in 2010 as farmers rush to replenish their soil nutrient levels, stoking M&A.

Yara Chief Executive Joergen Ole Haslestad said on Monday that the all-cash acquisition of Terra "will create a clear global No. 1 in the fertilizer industry. "We expect the U.S. markets to pick up in a big way," he told reporters.

Energy-intensive fertilizer producers in North America have become increasingly attractive, Yara said, due to "structural changes" in U.S. energy markets as a boom in unconventional gas output curbs U.S. natural gas prices.

Production costs for urea — the main component of Nitrogen-based fertilizer — inherited from the Terra deal would be about half the $1,500 per ton it would cost to build new capacity in, for example, the Middle East where energy costs are low, Yara said.

The deal also allows it to tap Terra's logistics in the United States.