Bunge Ltd. said Jan. 27 that it has entered into a definitive agreement with Vale S.A. under which Vale will acquire Bunge’s fertilizer nutrients assets in Brazil, including its interest in Fertilizantes Fosfatados S.A., for $3.8 billion in cash. Net proceeds after taxes, transaction fees, and expenses will be approximately $3.5 billion.
Vale, a Brazil-based global mining company, will acquire Bunge’s 42.3 percent interest in Fosfertil, as well as Bunge’s wholly owned phosphate mines and related production facilities in Brazil. The total annual phosphate rock production capacity of Bunge’s nutrients assets and its share of Fosfertil is approximately 3 million mt. Other Bunge production assets include sulfuric acid at three locations, phosphoric acid, SSP plants at three locations, and feed phosphate at two locations.
Bunge will retain its retail fertilizer operations in Brazil and will enter into a supply agreement with Vale through 2012, with an option to extend it for one additional year. Bunge will also retain its fertilizer operations in Argentina, which include an SSP plant, nitrogen production, and NPK retail, and in the U.S., which includes wholesale, as well as its 50 percent stake in a joint venture with Office Cherifien des Phosphates in Morocco. The latter includes sulfuric acid, phos acid, and MAP/DAP/TSP under construction.
“This transaction is an opportunity to immediately realize the value of these assets at an attractive price,” said Alberto Weisser, Bunge chairman and CEO. “It allows us to redeploy capital to increase the scale of our global agribusiness and food & ingredients businesses, and to further expand into complementary value chains such as sugar. We see compelling opportunities for growth by building on our global footprint and leveraging our commercial, logistics and risk management capabilities across a larger product portfolio. We believe this approach will deliver greater shareholder value over the long-term.” Additionally, Bunge intends to use a portion of the proceeds to reduce outstanding debt.
“It’s an opportune time for Bunge to exit the upstream fertilizer business,” said Weisser. “To continue to grow it would have required significant capital that, in the face of uncertain international fertilizer price and local currency environments, we believe is better allocated to other opportunities. Additionally, large global mining companies are entering the industry and diversifying their portfolios. We are pleased that this business will join Vale, which shares with Bunge a long-term commitment to Brazil.”
In addition, Weisser told analysts in a conference call that significant low-cost production capacity is expected to come online in the next three years. He alluded to phosphate production in Saudi Arabia, Morocco, and elsewhere. Weisser added that the International Fertilizer Association has forecasted that global phosphate growth capacity could increase by as much as 30 percent by 2013. He said Brazil is a net importer and is a price taker, and that its Brazilian production business would be driven primarily by international prices.
Weisser said that over the next five years, Bunge would not have seen any positive cash flow out of this business. He said the mines are running at full capacity and would require investment to grow.
Weisser also acknowledged that there was tremendous pressure on Brazilian fertilizer companies to expand domestic fertilizer production. He said Bunge has an excellent relationship with the government and it is one of the largest exporters of food.
The transaction, which is subject to customary closing conditions, including the receipt of governmental approvals relating to certain mining concessions, is expected to close in the second quarter of 2010.
Of the $3.8 billion, Vale attributes $1.65 billion to Bunge’s phosphate rock mines and other phosphate assets, with the remaining $2.15 billion being Bunge’s stake in Fosfertil. Bunge is the second largest producer of phosphate fertilizer in Brazil, with a market share of 14 percent. Besides two phosphate mines, Bunge has plants turning out MAP, DAP, TSP, and SSP. The company fulfills 22 percent of the country’s phosphate requirements and 23.4 percent of its nitrogen.
Vale expects to see an increase in Brazilian fertilizer demand in the next 10 years. Brazil’s share of global phosphate usage currently sits at 9 percent. Vale expects that to increase to 13.5 percent by 2020. The purchase fits Vale’s overall strategy to become a global force in the fertilizer industry. In the next seven years, Vale wants to have 3.3 million mt/y and 10.7 million mt/y of potash. It already owns potash assets in Brazil, Argentina, and Canada; its Peruvian phosphate rock mine, which is under development, will have the capacity to produce 3.9 million mt/y.
Vale said that upon closing of the transaction with Bunge it would launch a mandatory offer to buy out the common shares held by minority shareholders of Fosfertil for 100 percent of the price per share attributed to Fosfertil shares. Fosfertil is the biggest producer of phosphate and nitrogen fertilizers in Brazil. The company owns three phosphate mines, two ammonia plants, and finished fertilizer plants with an upgrading capacity of 3.4 million tons phosphate rock and 0.6 million tons ammonia per year.
Yara International ASA said on Jan. 29 that it has agreed with Vale to sell its shares in Fosfertil in Brazil for $785 million. Yara will sell its stake in the Anitapolis phosphate rock project to Vale at the same time. Yara owns 15.5 percent of Fosfertil directly and indirectly following the acquisition of Fertibras in 2006.
The Anitapolis project, of which Yara owns 50 percent, is a project for developing a phosphate mine in Brazil. It was acquired when Yara bought Adubos Trevo in 2000. The project is still at an early stage, but significant development work has been done.
“Brazil remains an important growth market for fertilizer and Yara, but a minority position in Fosfertil is not giving the optimal operational integration with Yara’s fertilizer marketing in Brazil, a marketing activity that we will continue to develop. We see the offer from Vale as an attractive price for a non-integrated position,” says Jørgen Ole Haslestad, President and CEO of Yara International ASA.
The sale is conditional upon Bunge selling their shares in Fosfertil to Vale, subject to some precedent conditions.
The sale of the Fosfertil shares will give Yara a profit before tax of approximately US$550 million, and the close is expected in the second quarter of 2010. The sale of the Anitapolis shares will create a small profit.
Also, The Mosaic Co., a minority shareholder in Fosfertil, is reportedly in negotiations with Vale. Mosaic had not responded to inquiries at press time.
According to Vale, Fosfertil’s 2008 gross revenues were US$2.1 billion, while EBITDA was $761 million and net earnings were $436 million. For the first nine months of 2009, revenues were $987 million, with a negative EBITDA of $69 million and a loss of $36 million. As of Sept. 30, 2009, total debt was $66.6 million with cash and cash equivalents of $121.5 million, implying a negative debt of $54.9 million.
Bunge put it’s share of Fosfertil’s 2007-2009 average EBITDA at $188 million, with revenues of $646 million. It said the non-Fosfertil assets it is selling have an average EBITDA of $114 million and revenue of $810 million for the 2007-2009 period. These non-Fosfertil assets had a net loss of $52 million for the first nine months of 2009 and a negative EBITDA of $57 million. The company had net income of $209 million and EDITDA of $284 million in 2008.