Fertilizer merger mania continued last week with a new cast of characters. Brazilian mining giant Vale is readying a U.S.$25 billion bid for the U.S.-based The Mosaic Co., according to a report in the Brazilian newspaper O Estada de S. Paulo on Thursday, July 16. The reported Vale bid is based on a $56 per share price.
Vale, Mosaic, and Cargill Inc., which owns about two-thirds of Mosaic, were all mum on the deal, the latter two saying they do not respond to market rumors. Vale said it would not make any comments.
The news was exciting enough to boost most North American fertilizer stocks, with Mosaic’s going up 12.19 percent or $5.43, to close at $49.98 on Thursday. Other major potash producers, PotashCorp (4.35 percent) and Agrium Inc. (5.05 percent), also saw a boost, which helped offset reports of lower international potash prices.
There has been speculation for some time that Vale or Australian mining giant BHP would put together a bid for one of the three major Canadian potash producers. Both Vale and BHP have invested in Canadian potash reserves; however, both have the money to immediately become players by buying significant assets. Why wait several years and spend billions to complete a mine, when you could hit the road running with existing assets? Reports are that Vale has opted to narrow its focus on the fertilizer industry after failing to acquire rival mining company Xstrata a year ago for $90 billion.
Vale paid $850 million earlier this year for potash deposits in Argentina and Saskatchewan (GM Feb. 9). Vale already operates Taquari-Vassouras, state of Sergipe, Brazil, where it produced 607,000 mt of potash in 2008. Additionally, it is evaluating the feasibility of potash projects in Brazil (Carnalita) and Argentina (Neuquén), which will involve the use of solution mining. Simultaneously, it is developing the Bayóvar phosphate project in Peru, expected to come onstream in the second half of 2010, with an estimated capacity of 3.9 million mt/y and budgeted capital expenditures of $479 million.
The deal particularly makes sense to a Brazilian company because the country imports both potash and phosphate and has the goal to become self-sufficient. In addition to its North American phosphate and potash production assets, Mosaic is one of the largest producers and distributors of blended fertilizers for agricultural use in Brazil. It owns and operates eight bulk blending plants in Brazil and SSP plants at Paranagua and Cubatao. It owns 62.1 percent of Fospar, S.A., which owns and operates a SSP granulation plant and a deep-water fertilizer port and throughput warehouse terminal facility in Paranagua. Together these plants annually distribute approximately 3.1 million mt of fertilizer in Brazil. Mosaic also has an import terminal that handles approximately 2.8 million mt of imported fertilizers.
Mosaic also owns 19.9 percent of Fosfertil, a Brazilian publicly traded company, which in turn owns 100 percent of Ultrafertil, S.A. Fosfertil is the largest phosphate-based fertilizer manufacturer in Brazil, operating a phosphate rock mine and a phosphate processing facility. Ultrafertil is a major nitrogen company that operates two nitrogen plants, a modern port facility at Santos, a phosphate rock mine and two smaller phosphate processing facilities.
Unlike the other big fertilizer merger at the forefront (Agrium Inc., CF Industries Holdings Inc., and Terra Industries Inc.), the ball may be in the court of only one major shareholder-Cargill, which still owns the majority stake in the company. As a prosperous private company with a long-term view, Cargill may not be anxious to sell. And if it were, why not start a bidding war between Vale and BHP or other major mining companies?
Industry watchers will recall that earlier this year there were similar reports that Germany’s K+S Group was preparing a bid for the U.S.-based Compass Minerals (GM March 9). Thereafter, the price of Compass shares rose. A bid was never officially announced. K+S wound up buying Morton Salt instead.
And what of that other merger story—Agrium, CF, and Terra? It has been oddly quiet on that front, leaving one to wonder if this has actually been a period where “engagement” could have been going on. Regardless, it may heat up again soon as Agrium’s last extension of its offer for CF is slated to expire Wednesday, July 22.