The Mosaic Co. on Jan. 2 announced modifications to the definitive agreement with Vale SA for the acquisition of Vale Fertilizantes. There are two major modifications.
There is a reduction in purchase price consideration to $1.15 billion in cash and 34.2 million shares of Mosaic common stock, or 8.9 percent of Mosaic shares, from the $1.25 billion in cash and 42.3 million shares of Mosaic stock, or 11 percent of shares, initially agreed to in late 2016 (GM Dec. 23, 2016). The initial deal was valued at $2.5 billion; however, after the announcement, analyst calculations were closer to $2 billion based on Mosaic’s share price at the end of 2017.
In addition, Vale will now retain equity ownership in the TIPLAM port, and Mosaic will continue to have the right to use the TIPLAM port facility, in accordance with commercial arrangements entered into between the parties. Originally, Mosaic was to receive a 20 percent stake in the port.
“Our conviction in the long-term outlook for the business and the promise of Brazil has not changed,” said Joc O’Rourke, president and CEO. “We look forward to completing the transaction and working to realize the exceptional opportunity this acquisition presents.”
The transaction is expected to close on or about Jan. 8, 2018.
RBC analyst Andrew Wong, in a Bloomberg report, said the changing of the terms is positive for Mosaic, as it makes the assets more attractive. BMO analyst Joel Jackson wrote that the new terms lowers leverage for Mosaic, but likely shows the deteriorated earnings of the acquired assets and reduced port asset portfolio could potentially lower synergy potential.
Mosaic recently announced that the deal should result in $275 million of annualized improved cash flow by the end of 2020 (GM Nov. 3, 2017), replacing a previously announced target of $75 million in annual operating synergies.
The Vale business to be acquired currently has capacity to produce 4.8 million mt of finished phosphate crop nutrients and 500,000 mt of potash. It includes five Brazilian phosphate rock mines and four chemical and fertilizer production facilities, as well as one potash facility in Brazil. Through the acquisition, Mosaic also will acquire Vale’s 40 percent economic interest in the Miski Mayo phosphate mine in Peru, taking Mosaic’s own stake in that asset to 75 percent.
The purchase also includes Vale’s junior potash mining project at Kronau, Sask., Canada. While it also included the option to include the partially-constructed Rio Colorado, Argentina, potash project, Mosaic opted against taking that asset. Although the Rio Colorado project was idled in 2013 (GM Jan. 28, 2013), Vale was in talks with Argentinean and provincial authorities in 2016 about getting the project back on track.
Mosaic was already one of the largest producers and distributors of blended fertilizer for agricultural use in Brazil, owning and operating 12 blending plants in Brazil and one in Paraguay. In addition, it leases several other warehouses and blending units, depending on sales and production levels. It has a 62 percent ownership interest in Fospar SA, which owns and operates an SSP granulation plant and a deep-water fertilizer port and throughput warehouse terminal facility in Paranagua, Brazil. The port facility at Paranagua handles approximately 2.6 million mt of imported fertilizer.
Mosaic has completed the integration of its 2014 acquisition of ADM’s fertilizer distribution business in Brazil and Paraguay (GM April 21, 2014). With current assets, the company said it is poised to increase its distribution capacity in the region from approximately 4 million mt to 6 million mt. Also inked with ADM in 2014 were five-year fertilizer supply agreements to meet ADM’s fertilizer needs in Brazil and Paraguay.