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 stock and debt, the companies said yesterday in a statement. The Mosaic shares will then be sold in secondary offerings.
“It’s possible for Mosaic to be acquired” during the more than two years in which the secondary offerings take place, Mosaic Chief Executive Officer Jim Prokopanko 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.
BHP and Rio Tinto Group, the world’s biggest and third- largest mining companies, “will be mooted as potential acquirers, as well as the likes of Vale SA,” Liberum Capital Ltd. analysts said in a note to clients today.
Ruban Yogarajah, a London-based BHP spokesman, declined to comment. Rio Tinto spokesman Tony Shaffer, also based in London, declined to comment.
Robert Koort, a Houston-based analyst at Goldman Sachs Group Inc., said today in a note to clients that the Cargill transaction reduces the likelihood that Mosaic will be acquired by a third party in the next two years.
“Mosaic does not preclude itself from being acquired, but the deal’s structure does impose certain limitations,” said Koort, who rates shares of Plymouth, Minnesota-based Mosaic “neutral.”
Mosaic fell $8.92, or 10 percent, to $76.15 at 4 p.m. in New York Stock Exchange composite trading, the biggest decline since March 2009. Mosaic advanced 21 percent in the past year.
“Mosaic is going to have to manage on its own,” Don Roose, president of U.S. Commodities Inc., a West Des Moines, Iowa-based hedging and trading firm, said by telephone. “You don’t have the big brother at your side.”
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.
‘Variety of Alternatives’
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, Greg Page, the Minnetonka, Minnesota-based company’s chief executive officer, said in an interview.
Margaret Cargill died in 2006 aged 85. Her trustees initially requested Cargill buy back her estate’s interest, something the company wasn’t able to do while fulfilling its growth plans, Page said. Cargill’s board looked at a “variety of alternatives,” he said.
“That process has gone through a number of iterations over the last three and a half years,” Page said. “We needed to meet the needs of Cargill legacy investors who expressed an energetic interest to remain private.”
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.
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.
There were 67 acquisitions of agricultural-chemical companies announced or completed in the past year valued at least $20.7 billion, according to data compiled by Bloomberg.
“Cargill is smart money,” Malcolm Polley, president of Stewart Capital Advisors LLC, said in a telephone interview from Indiana, Pennsylvania. “If they are getting out of Mosaic, maybe it’s a good time to hedge your bets probably in the whole sector.”
Mosaic was created when Cargill combined its fertilizer business with IMC Global in 2004. Mosaic got 69 percent of its revenue from phosphates used in fertilizer in the fiscal year ended May 30, and 31 percent from potash, another crop nutrient.
Mosaic owns phosphate production in Florida, Louisiana, Brazil and Argentina as well as ports and warehouses in Asia, South America, and North America. It also owns production capacity of 10.4 million tons of potash with mines in Saskatchewan, New Mexico and Michigan.
The company sourced 35 percent of its sales in the U.S. last year while India and Brazil were its next biggest customers, according to Bloomberg data.
U.S. phosphate prices advanced 37 percent to $590 a metric ton since May 27, while potash prices in the U.S. Midwest have risen 15 percent during the past 12 months, according to Bloomberg data.
Cargill said last week its second-quarter net income more than tripled to $1.49 billion after its grain-trading unit gained from a drought in Russia. Sales advanced 16 percent to $31.1 billion.
The value of Cargill’s Mosaic stake was calculated based on yesterday’s closing Mosaic share price of $85.07 in New York and the 286 million Mosaic shares that Cargill has according to Bloomberg data.
Credit Suisse Group AG and Fried Frank Harris Shriver & Jacobson LLP are advising Cargill on the transaction, and JPMorgan Chase & Co. and Simpson Thacher & Bartlett LLP are counseling a special committee of independent Mosaic directors. UBS AG and Loeb & Loeb are working with the trusts. Rothschild and McDermott Will & Emery are representing a trustee of one of the trusts.
Cargill is the largest privately held U.S. company according to a 2010 ranking by Forbes.com.
To contact the editor responsible for this story: Simon Casey at email@example.com.