Cargill Sheds Mosaic Stocks

January 18, 2011, 4:08 pm I.P.O./Offerings
Cargill to Split Off Mosaic Unit in Complex Deal
8:39 p.m. | Updated
Cargill said on Tuesday that it planned to spin off its 64 percent stake in the Mosaic Company, a big producer of important ingredients in fertilizer, leaving Mosaic open for a possible sale at a time when mining and agriculture giants are on the prowl for acquisitions.
The complicated tax-free transaction — worth more than $24 billion — will also help keep Cargill, one of the biggest American companies, private. Cargill will distribute its 286 million Mosaic shares to its own shareholders and debtholders.
Begun in 1865 by William Wallace Cargill with a single grain elevator in Iowa, Cargill has since become a colossus of the global agricultural business. It reported $2.6 billion in earnings on top of $107.9 billion in revenue for its fiscal year that ended May 31.
The corporate parent’s sale of its 64 percent stake in Mosaic comes as big mining companies have been seeking to expand in fertilizer. That interest was amply illustrated by the Australian mining company BHP Billiton’s $38.6 billion unsolicited takeover offer for Potash of Saskatchewan, the world’s largest producer of the fertilizer component.
BHP ended its pursuit in November after Canadian regulators objected to a possible deal. As standards of living improve in countries like China and India, global demand for food is rising and companies that produce fertilizer are being seen as attractive takeover targets.
“The world is not getting less hungry,” James T. Prokopanko, Mosaic’s chief executive, said on Tuesday afternoon during a conference call with analysts.
Mosaic was formed in 2004 from the merger of Cargill’s crop nutrition unit with IMC Global, creating a giant in fertilizer production and leaving Cargill with a 64 percent stake. It is the world’s second-largest potash producer, behind Potash, and owns more than a third of Canpotex, the Canadian entity that controls that country’s exports of the material.
A major component of Cargill’s earnings, Mosaic reported about $8.5 billion in revenue and $1.9 billion in profit for the 12 months that ended Nov. 30. Based in Plymouth, Minn., it has 7,500 employees.
As of Tuesday’s closing price of $85.04, Mosaic had a market value of $37.9 billion.
Years in the making, the spinoff is meant to help both Cargill and Mosaic. It will bolster the liquidity of Mosaic’s stock, as well as give the business greater financial freedom.
Mr. Prokopanko said the spinoff would put more than 50 percent of Mosaic’s shares in public investors’ hands, making the company eligible for listing in the Standard & Poor’s 500-stock index.
It will also help Cargill focus on core operations like grain purchasing and distribution and the making of food ingredients like dressings and sauces, as well as improve its credit rating by paying down debt.
“We’re thrilled about it,” Mr. Prokopanko said in a telephone interview on Tuesday. “I can’t stress strongly enough how this will free us to grow the business.”
But the deal is also aimed at helping diversify the holdings of various charitable trusts and foundations that make up a large portion of Cargill’s investor base, according to people briefed on the matter. Under the terms of a will set up for Margaret A. Cargill, a descendant of Cargill’s founder who died in 2006, the various trusts set up to hold company shares must diversify their portfolios over time.

Under the terms of the transaction, Cargill’s existing shareholders will be given the chance to exchange their holdings for up to 179 million of Cargill’s shares in Mosaic. Cargill will also offer its existing debtholders the chance to swap their holdings for up to 107 million Mosaic shares.
Within 15 months of the closing of the spinoff, Mosaic will hold sales for about 157 million of those spun-off shares. The first such sale would be held immediately after the closing of the deal, which is expected in the second quarter this year.
Any of the 129 million shares not sold during those offerings are subject to a lockup of two and a half years after the spinoff closes. Mosaic expects to fully sell off the newly distributed shares within four and a half years, Lawrence W. Stranghoener, Mosaic’s chief financial officer, said in a telephone interview.
Cargill stressed that a crucial component to the complicated spinoff is an expected sign-off by the Internal Revenue Service regarding the tax-free nature of the deal. But Mosaic and Cargill would entertain a takeover offer for the business if it were high enough to compensate for the loss of any tax benefits incurred in that transaction, the people briefed on the matter said.
The deal was approved by a special committee of the Mosaic board, but must still be voted on by a majority of its non-Cargill shareholders.
Cargill was advised by Credit Suisse and the law firm Fried, Frank, Harris, Shriver & Jacobson, while the company’s special board committee was advised by JPMorgan Chase and the law firm Simpson Thacher & Bartlett.
The Cargill charitable trusts were advised by UBS and the law firm Loeb & Loeb.