| NEW YORK
NEW YORK Agribusiness giant Cargill Inc CARG.UL plans to spin off its $24 billion majority stake in Mosaic Co (MOS.N), 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, which currently has a market cap of about $38 billion.
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.
Prokopanko told Reuters that the company hasn't been running a process to sell Mosaic.
"For heaven's sake, we're spending $5 billion on our potash business," he said in an interview. "We continue to see opportunity to grow."
Mosaic shares, which closed at $85.07 on the New York Stock Exchange, are worth nearly six times their value in 2004, when Cargill formed the company. But its stock is currently well below an all-time high just above $150 per share hit in the summer of 2008.
Shares of Plymouth, Minnesota-based Mosaic dipped nearly 2 percent in post-market trading. Gleacher & Co analyst Edlain Rodriguez speculated that shareholders could be worried that the broadening of the company's shareholder base could complicate an outright sale of Mosaic.
"Some people are talking about this making it easier for Mosaic to sell itself, but I think this is in fact going to make it harder," said Rodriguez.
Rodriguez said he doubts a buyer will soon emerge, as the company has likely already explored other strategic alternatives before settling on this option.
Mosaic mines potash and phosphate, two of the most important fertilizers that farmers must apply to fields. The industry has seen a prolonged boom in recent years, the result of the increased demand for agricultural products in China and other emerging markets.
Analysts expect fertilizer demand to surge in 2011 as farmers look to cash in while grain prices are strong.
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.
That volatility may highlight why some Cargill holders wanted to exit the stock now, Dahlman Rose & Co analyst Charles Neivert said.
BHP, based in London and Australia, and Brazil's Vale (VALE5.SA) (VALE.N) 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.
Investor interest in the fertilizer industry spiked last year after BHP Billiton's (BHP.AX) unsuccessful attempt to acquire Canada's Potash Corp (POT.TO) 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.
Cargill is one of the world's largest privately held corporations. The bulk of the company is owned by members of the Cargill and MacMillan families.
After the spin-off is completed, the family ownership will go down slightly to about 86 to 87 percent while employee ownership will go up from to about 10 percent, from 7 percent today, Cargill CEO Greg Page said in an interview.
He said the transaction balanced the interest of the family trusts, which wanted more cash for their charitable endeavors, and the family's other shareholders.
"The transaction that's announced today was seen as the best way possible to deal with both their desire to carry out their charitable purposes and the remaining legacy family owners to keep the company private," Page said.
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.