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Cargill, the largest privately held US company, has agreed to spin off its 64 per cent stake in fertiliser producer Mosaic in a $24.3bn deal that could satisfy a restive shareholder.
The grain-trading-to-hedge funds Minnesota company has owned a majority of Mosaic since its 2004 creation.
The announcement comes as rising global food demand and strained supplies have sent the price of fertiliser soaring.
The 146-year-old Cargill is still controlled by about 80 members of the Cargill and MacMillan families. It said that the transaction would keep it privately held and satisfy the “diversification and distribution needs” of charities formed after the 2006 death of Margaret A Cargill, a shareholder and granddaughter of founder William Cargill. Her charitable trusts, which owned 17 per cent of the company, had been lobbying to sell the stake.
The complex, three-step deal would also help Cargill to pay down debt as volatile agriculture markets put pressure on the balance sheets of trading companies. Cargill earned $2.6bn in the year ended May 2010 on revenues of $107.9bn.
For Mosaic, a phosphates and potash seller, a deal could lure bidders.
The most obvious candidate is BHP Billiton, which has made clear it still wants to expand in the potash market after its failed $39bn hostile takeover attempt of Potash Corporation of Saskatchewan. Jim Prokopanko, Mosaic chief executive, said: “The world is not going to need less food. We have a clear strategy to capitalise on this growth opportunity.”
Shares of Mosaic closed on Tuesday at $85.07, giving it a market capitalisation of nearly $38bn.
Under the deal, Cargill plans to exchange about 179m of its 286m Mosaic shares with Cargill shareholders, including the charities, for all or some of their Cargill stock. Cargill expects to exchange its remaining 107m Mosaic shares for Cargill debt owned by third parties.
The Margaret A Cargill foundation said it had for four years pushed to monetise its Cargill shares.
Gregory Page, Cargill chief executive, told the Financial Times: “This is probably the best evidence one can imagine of the family’s commitment to remaining private.”
The complicated structure proposed on Tuesday was designed to enable a tax-free separation of Mosaic.
It took a year to obtain tax approval because of compexity of separation
Cargill’s proposed separation is so complex, it took a year to obtain approval from the tax authorities, writes Helen Thomas. So-called high vote recapitalisations followed by a split are not unprecedented – the most recent was done by MetLife in 2008 to separate Reinsurance Group of America. However, Cargill’s will be far bigger than the nine previous instances. In order for the split to be tax-free, Cargill shareholders must end up with more than 80 per cent of the votes to elect Mosaic board directors. Hence the creation of class B stock, to carry 10 votes a share in board elections.
Mosaic’s board can quickly propose a shareholder vote after closing to convert that to regular shares. Limits on the sale of shares after the split is also needed to get the nod from the taxman.
Secondary offerings will allow the charitable trusts of Margaret Cargill and Cargill itself, indirectly, to sell about a third of Mosaic into the market in the 15 months after the deal closes.
However, another 30 per cent of Mosaic, which will be held by current Cargill shareholders following the exchange, cannot be sold for two-and-a-half years.
People close to the deal argue that the tax-free structure satisfies the need for liquidity by the charitable trusts, while leaving the door open for a third-party to make an offer for Mosaic. But Cargill has sent a benchmark for suitors, say those people, which could require a buyer to stump up a premium and compensate Cargill for the value it would lose in doing a taxable sale.