Agribusiness giant Cargill Inc plans to spin off its $24 billion majority stake in Mosaic Co, a move that could eventually lead to a takeover of Mosaic, the world's second-largest fertilizer producer.
The distribution of the 64 percent stake in Mosaic will allow Cargill to maintain its private company status while enabling Cargill family trusts to diversify their holdings, Cargill said on Tuesday.
The plan for the spin-off calls for Cargill to initially distribute its Mosaic shares to Cargill shareholders, including the family trusts, and to Cargill debtholders. The Mosaic shares will be exchanged for Cargill shares or debt.
The plan then allows for the sale of the shares on the secondary market over a period of time.
Mining investment bankers said Cargill's spin-off could put Mosaic in play, with global mining giants being the likely bidders.
"BHP and Vale are the two mining giants that come to mind. They both have talked about wanting to do a deal in this space. You'd probably get some interest out of Asia, as well," said one investment banker who specializes in resource transactions.
The spin-off could also be seen as setting a possible floor on the value of Mosaic.
Mosaic Chief Executive Jim Prokopanko said on a conference call with investors that the company could still sell itself over the next two years in spite of the planned split.
According to a source familiar with the matter, the company and Cargill have built mechanisms into their deal that would allow Mosaic to accept an outside takeover bid if one arises.
But for a bid to be taken seriously, the source said, it would need to be high enough to offset the tax benefits of the current transaction.
Investor interest in the fertilizer industry spiked last year after BHP Billiton's unsuccessful attempt to acquire Canada's Potash Corp for $39 billion.
The bid was blocked by the Canadian government, which ruled BHP's ownership of the No. 1 fertilizer producer would provide no net benefit to the country.
A rise in fertilizer shares accelerated in recent weeks on mounting concerns about food security. Unfavorable weather conditions in many parts of the world has hurt yields and led to a major spike in grain prices.
Mosaic's stock is currently well below an all-time high just above $150 per share hit in the summer of 2008. Since that time, prices for phosphate and potash, two of the company's main fertilizers, have fluctuated, even as demand for food continued to spike.
Analysts expect fertilizer demand to surge in 2011 as farmers look to cash in while grain prices are strong.
A spokesman for BHP declined to comment on whether the company would consider acquiring Mosaic or a stake in the company.
BHP, based in London and Australia, and Brazil's Vale are two of the world's largest mining companies. BHP currently is not involved in the fertilizer business, while Vale last year acquired fertilizer properties in its home country from Mosaic.
The boards of both Mosaic and Cargill have approved the deal. It is also subject to the approval of a majority of Mosaic shares held by non-Cargill shareholders.
"This transaction will bring significant benefits to our company and shareholders. Going forward, we will be better positioned to capitalize on the positive outlook for our industry," Prokopanko said in a statement.
Shares of Mosaic, which closed at $85.07 on the New York Stock Exchange, were down 1.8 percent in post-market trade.
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