Cargill may have a "For Sale" sign on Mosaic, the world's second-largest fertilizer producer, but it could be years until buyers come knocking.

In a three-step deal years in the making, Cargill plans to shed its 64% stake in Mosaic, or 286 million shares worth some $24 billion, to Cargill's shareholders and debt holders.

The spin-off comes after Mosaic explored a sale over the past two years, although no deal materialized, sources told Reuters.
"If there were a $120 (per-share) deal on the table it probably would have been announced," said one arbitrage investor, who spoke on the condition of anonymity.

The market consensus on Wednesday was that the deal with Cargill perhaps was not the best option for minority Mosaic shareholders. Some Cargill shareholders will be required to hold Mosaic stock for at least 30 months as part of the complex deal. Moving quickly to drop the stock, investors sent Mosaic shares down more than 10% on Wednesday. Corn futures also fell, as did shares of Mosaic rivals CF Industries Holding, Potash Corp and Agrium.

"What at first appeared to be a great near-term opportunity has been structured in such a way that any corporate buyer would have to be very patient," said Ambrian analyst Nick Mellor.

Another factor weighing down shares could be the fact that, even though the deal is not technically dilutive to Mosaic, about 157 million shares will hit the market in the next 15 months. That will nearly double the publicly available float of Mosaic's stock.

Potential Interest
While the spin-off may create difficulties for a possible sale of Mosaic in the near term, the transaction opens up long-term deal possibilities.

Instead of having the intensely private Cargill family controlling most of Mosaic, the company will be in the hands of diverse holders. That means that potential buyers will not have to worry about a single shareholder nixing a deal in the future.

Potential future bidders for all or part of Mosaic could include Brazil's Vale or Australia's BHP Billiton Ltd, sources said. Vale, which is planning to spin off its own fertilizer assets this year via an initial public offering, has previously denied Mosaic takeover attempts.

"It's a difficult moment (in Brazil for political reasons)," said Antonio Ruiz of Banco do Brasil Investimentos. "If the assets were broken down in smaller pieces, Vale might be interested."

For BHP Billiton, the chance to own a piece of Canpotex, a Canadian fertilizer distributor that Mosaic co-owns with Potash Corp and Agrium, may be irresistible.

"This could be a very slow cooker, but a very good addition to BHP Billiton's own developing potash business and comes with an enviable, world-wide distribution network," Ambrian's Mellor said.

Tax-Free For Cargill
Cargill, a privately held company that supplies grain and meat to some of the world's largest food companies, said the tax-free deal helps it remain private and gives cash to its charitable trusts.

"You might want to call it a very convoluted way of doing a secondary (offering)," Dahlman Rose & Co analyst Charles Neivert said. "By the same token, Cargill's doing a great deal."

The deal limits Mosaic's ability to declare special dividends and pursue share buybacks for the next two years, but does not limit the company's ability to use its $3 billion in cash, Mosaic executives said.

The deal also removes a hindrance to listing on the S&P 500 index, Mosaic CEO Jim Prokopanko said. The company has no plans to pursue listing on the Toronto Stock Exchange, despite numerous fertilizer assets in Canada, he added.

Mosaic's shares fell $8.92, or 10.5%, to close Wednesday at $76.15. They have traded between $37.68 and $85.44 in the past 52 weeks.

Volume was intense, with about 23 million shares trading hands, contrasted with an average trading volume of about 4.5 million shares.