Brazil’s Vale SA has agreed to sell the bulk of its fertilizer business to The Mosaic Co. for $2.5 billion as part of its strategic efforts to pay down debt.
Once closed, the deal will make Mosaic one of the top fertilizer producers and distributors in Brazil, giving the group an extended presence in one of its top international markets that generated $2.14 billion in net sales in 2015 or 24 percent of the company’s total sales for the year, according to Seeking Alpha.
“If you want to grow in agriculture and fertilizers it has to be in Brazil,” Floris Bielders, president, Brazil for Mosaic said in an interview, reports 4-traders. “It’s the fastest-growing market and with the most upside to continue to grow.”
For Vale, the largest producer of iron-ore and nickel in the world, the company was never successful at majorly scaling up its fertilizer business, with the unit accounting for only eight percent of the group’s overall revenue for the third quarter and showing negative earnings before interest and tax according to the Wall Street Journal.
Under the terms of the deal Vale will receive $1.25 billion in cash, which Mosaic will raise through the issuance of debt, and another $1.25 billion in shares of Mosaic’s common stock, or 11 percent of Mosaic’s outstanding shares.
Under the terms of the deal Mosaic will acquire five phosphate rock mines, four chemical and fertilizer production facilities, and one potash facility all located in Brazil. The deal will also grant Mosaic Vale’s 40 percent stake in the Miski Mayo phosphate mine in Peru and its potash project in Saskatchewan, Canada, and will also give Mosaic the option to include the potash project in Rio Colorado, Argentina at closing as part of the transaction. Vale’s Cubatão-based nitrogen and non-integrated phosphate business will be excluded from the deal.
“Mosaic has agreed to acquire high-quality and complementary assets in a powerhouse agricultural center that have significant cost advantages at an attractive valuation,” said Rich Mack, Executive Vice President and Chief Financial Officer. “We expect this transaction to be both accretive to earnings and cash flow positive, and we will continue our focus on maintaining a solid investment grade credit rating.”
Vale will also have the right to appoint two people for nomination to the Mosaic Board of Directors as it shifts into the role of minority shareholder and partner.
The combined fertilizer business in Brazil will be headed up by Rick McLellan, who led the fertilizer business in Brazil when Mosaic was formed in 2004, and current Mosaic Commercial vice president.
“I am excited at the prospect of leading Mosaic’s vastly expanding business in Brazil,” said McLellan. “This will be an ideal time for us to grow in the region, with the strong Brazilian farm economy and growers across the country working to deliver higher crop yields.”
For Vale, which has been selling assets in order to meet its targeted reduction of $10 billion to its debt load, the deal will likely free up the company to focus on its core iron-ore business, Pedro Galdi, investment analysts with Upside Investor told the Wall Street Journal.
The now-common theme of falling commodity prices resulting in consolidations within various agribusiness sectors is now also playing out in the fertilizer space. This is the second billion dollar-plus acquisition for Minnesota-based Mosaic in three years following its acquisition of CF Industry Holding’s phosphate business in Florida for $1.2 billion in cash in October 2013. Meanwhile, in August of this year, Canada’s Agrium Inc. and Potash Corp. confirmed that they are engaged in talks regarding a merger of equals that would create an agribusiness giant valued at more than C$30 billion.
For Mosaic and Vale, both parties expect this deal to close by the end of next year once all regulatory approvals and closing conditions have been met, and Mosaic expects its U.S. phosphate operations to continue at full capacity to meet growing demand.
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Lynda Kiernan