Wednesday, January 19, 2011

Cargill to Divest Itself of Massive Mosaic (MOS) Opening Up Potential for Acquisition Bid

Since this website began in 2007, I've been questioning what the heck Cargill is doing with its stake in Mosaic (MOS).  The percent ownership was so large it did not allow for any realistic takeover bid for the company, but when owning 2/3rds why not go the full monty?  Last night, Cargill announced it will be divesting itself of Mosaic shares, opening up some interesting possibilities.  The most obvious would be a potential takeover of the company by one the global mega mining giants, with BHP Billiton (BHP) being the obvious front runner after the Canadian government squashed a bid for Potash (POT).  [Nov 4, 2010: Canada Surprises Market by Rejection of BHP Billiton's Bid for Potash]  With a $38B market cap, that can only rise in a Ben Bernanke ruled market there can only be so many companies in the world which can make a bid - or perhaps the Chinese will step in and try to secure long term supplies of natural resources, as has been their pattern throughout the globe.  The latter option surely would set up for some dramatic political outcomes, as America generally is happy to sell any part of itself to the higher bidder - unless it's a port.  And you are from the Middle East.  (Dubai Ports anyone?)  So here is one vote for the Chinese to bid for Mosaic, rather than BHP or Rio Tinto (RTP) - for dramatic effect if nothing else.  Mosaic's CEO is already indicating he is willing to sell out.  Sort of a catch 22 as once the shares are actually on the table to be sold, that is going to be an enormous amonunt of supply hanging over Mosaic for many quarters. 

  • Mosaic Co could sell itself over the next two years even though its majority shareholder Cargill  decided to sell its stake in the fertilizer company, Mosaic's chief executive said in a conference call on TuesdayThe company and Cargill have built mechanisms into their deal that would let the company accept a competing bid if one arises, according to a source familiar with the matter.  For a bid to be taken seriously, the source said, it would need to be high enough to offset the tax benefits of the Cargill-Mosaic deal.

Via Bloomberg

  • Mosaic Co., the second-largest fertilizer producer in North America, will be a “possible” takeover target as Cargill Inc. divests its $24.3 billion stake in the company over the next two years.  Cargill, the agriculture and food business that’s the largest closely held company in the U.S., will exchange its 64 percent holding in Mosaic, or 286 million shares, for Cargill shares and debt, the companies said yesterday in a statement. The Mosaic shares will then be sold in secondary offerings.
  • The deal will be tax-free to both companies and their respective shareholders. The transaction is subject to approval by Mosaic’s minority shareholders who will get $200 million if Cargill terminates the transaction. The agreement allows trustees of the estate of Margaret A. Cargill, the late granddaughter of company founder William Cargill, to sell all its Cargill shares.  Cargill will exchange 179 million Mosaic shares for Cargill stock held by Cargill investors. The other 107 million Mosaic shares will be swapped for Cargill debt held by third parties. 
  • “It’s possible for Mosaic to be acquired” during the more than two years the secondary offerings take place, Jim Prokopanko, Mosaic’s chief executive officer, said on a conference call with investors and analysts.
  • BHP Billiton Ltd.,  made an unsuccessful $40 billion bid in August for Potash Corp. of Saskatchewan Inc., Mosaic’s largest competitor. Russian producer OAO Uralkali said in December it will acquire domestic rival OAO Silvinit for $7.8 billion, with the deals prompted by a rise in global shipments of crop fertilizers to meet food demand from population growth.
  • The first secondary offering of the Mosaic shares will take place when the split-off closes, which is expected in the second quarter. The rest of the shares will be sold in subsequent offerings over more than two years following the closing.
  • “This transaction will give us more of a free hand to create long-term value for shareholders and increase our flexibility to pursue our strategic and financial goals,” Mosaic’s Prokopanko said on the conference call. 
  • Mosaic owns production capacity of 10.4 million tons of potash with mines in Saskatchewan, New Mexico and Michigan. It also owns phosphate production in Florida, Louisiana, Brazil and Argentina as well as ports and warehouses in Asia, South America, and North America.  The company sourced 35% of its sales in the U.S. last year while India and Brazil were its next biggest customers.
  • Mosaic got 69%of its revenue from phosphates used in fertilizer in the fiscal year ended May 30, and 31% from potash, another crop nutrient.
No position

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