a blog about cents, in every form & measure

Tuesday, January 25, 2011

Cargill to Give Up Mosaic Stake in $24.3 Billion Deal

A friend of ours was working on this deal from the PR end - quite interesting!

Cargill to Give Up Mosaic Stake in $24.3 Billion Deal

Agribusiness giant Cargill Inc. said Tuesday it plans to give up its majority stake in fertilizer company Mosaic Co. in a transaction valued at about $24.3 billion. The move could make Mosaic, a leading seller of potash and phosphate, a more attractive takeover target, while helping to finance a major new charity.
The transaction also foretells a significant reordering of Cargill, a closely held company that is one of the largest but least-known U.S. corporations.
In addition, the move will allow Cargill family members and trusts to effectively cash out of some of their holdings in the company.

Agribusiness giant Cargill Inc. said it plans to give up its majority stake in fertilizer company Mosaic in a transaction worth about $24.3 billion. Dennis Berman has details.
Companies involved in producing crop nutrients are seen as takeover targets in light of increasing food demand from countries such as China and constraints on global food supplies.

Players like BHP Billiton Ltd., which launched a failed $38.6 billion bid for Canada's Potash Corp. of Saskatchewan last year, and Brazilian miner Vale SA could be interested in Mosaic, people familiar with the situation said.

Mosaic, based in Plymouth, Minn., has a market capitalization of about $38 billion.

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Cargill owns 286 million shares, or about 64%, of Mosaic, giving its stake a value of roughly $24.3 billion based on Mosaic's stock price of $85.07 in 4 p.m. New York Stock Exchange trading Tuesday.
The transaction is structured to minimize taxes for all parties involved. The company plans to offer its Mosaic stake to Cargill shareholders, in return for Cargill shares, in what is known as a tax-free split-off.
While the deal puts restrictions on the ability of Cargill shareholders to transfer some of their Mosaic shares for several years, they would be allowed to sell their shares to a suitor of Mosaic whose offer complies with tax-free rules.

"Yes, it is possible for Mosaic to be acquired, as it was before the announcement of this transaction," said Jim Prokopanko, Mosaic's chief executive officer. "But there are certain limits on third-party transactions."
The deal, which is subject to the approval of a majority of the minority Mosaic shareholders, is largely being driven by the 2006 death of Margaret A. Cargill, who was the granddaughter of the company founder, and controlled about 17% of the company.

Representatives of her charitable trusts lobbied for years for some way to cash in her closely-traded shares, including the idea of having Cargill arrange for a public offering of her shares.
Through the Mosaic transaction, Ms. Cargill's charitable trusts would receive about 110 million Mosaic shares, which are currently valued at $9.4 billion. Margaret Cargill's trustees intend to sell their Mosaic shares over 4½ years.

The deal would rank Margaret Cargill's charities among the largest 25 grant-writing foundations in the nation. Her charities support causes such as the American Red Cross, the YMCA, public televison, elder care and Native American arts.

Cargill also said it will pay down potentially billions of dollars in debt by swapping it for about 107 million Mosaic shares, minimizing its debt service and improving the Minneapolis-based company's balance sheet.
The deal represents a huge return on Cargill's seven-year-old investment in Mosaic. Cargill management created Mosaic in early 2004 by combining $1.7 billion of its fertilizer assets with IMC Global Inc., then a struggling fertilizer company.

The Mosaic transaction would be the latest move by the tight-lipped company to reward its owners while steering clear of the one option that has always been forbidden: going public. Cargill's managers have long argued that staying private helps their ability to navigate in volatile commodity markets without having to cope with Wall Street's short-term expectations.

Cargill, which generated revenue of $107.9 billion during its fiscal year ended May 31, 2010, is one of America's largest closely held companies. Its operations touch on many of the world's agricultural businesses, from slaughtering pigs in the Midwest to exporting crops to China to ginning cotton in Africa.

Most of the stock in the 145-year-old company is owned by about 100 people who are descendents of the founding MacMillan and Cargill families, who were brought together by marriage more than a century ago.
Cargill was founded by William Wallace Cargill, the son of a Scottish sea captain, who started a frontier grain elevator in Iowa in 1865. Many of his descendants spent their lives at the company, often starting near the bottom in remote locations around the globe.

Despite Cargill's ever-expanding size, dividends were modest and family members often cashed in their shares at a fraction of the potential value.

In recent decades, however, a growing part of the job of Cargill's senior executives has been to manage the financial desires of its younger owners, many of whom have sought careers outside of the company. The last chief executive officer who was a family member, Whitney MacMillan, retired in 1995.

Beginning in the 1990s, the company sweetened its dividend formula, put younger family members on its board and created an employee stock-ownership plan so that family members have a way to sell some shares. About 25,000 Cargill employees own about 7% of the company.

Cargill has a long history of investing in businesses when they are out favor. It created Mosaic when grain markets were in the doldrums and prices of fertilizers were depressed.

Cargill has benefited from a global grain boom in part by exporting more crops. But the most dramatic impact on its earnings has come from its stake in Mosaic, the stock price of which has doubled since June.
Cargill reported last week that earnings for its second fiscal quarter ended Nov. 30 tripled to $1.49 billion from the prior year. About 44% of Cargill's earnings came from Mosaic.

Earlier this month, Mosaic said fiscal 2011 second-quarter earnings were $1 billion, compared with $107.8 million a year earlier. Sales totaled $2.7 billion, up from $1.7 billion in the same period last year.
Cargill's future earnings would be more modest without Mosaic's contribution, but the deal could give Cargill a stronger balance sheet for making acquisitions in different areas. While high grain prices are helping the profits of many agricultural and food-related companies, they are also creating a financial strain by greatly raising their working capital needs, make them more vulnerable to overtures.
Under the deal, Cargill will let Cargill shareholders exchange Cargill shares for about 179 million Mosaic shares held by Cargill. Cargill will swap the remaining 107 million Mosaic shares for Cargill debt owned by bondholders and others.
After the closing of the split-off, Mosaic will resell about 157 million Mosaic shares through a secondary offering.

Credit Suisse Group and law firm Fried, Frank, Harris, Shriver & Jacobson LLP were advisers to Cargill. J.P. Morgan Chase & Co. and law firm Simpson Thacher & Bartlett LLP advised the special committee of Mosaic's board of directors. UBS AG and law firm Loeb & Loeb LLP advised the Cargill trust.


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