Mosaic to Buy Vale's Fertilizer Business for $2.5 Billion -- 2nd Update
December 19 2016 - 02:52PM
Dow Jones News
By Paul Kiernan
RIO DE JANEIRO -- Brazilian mining firm Vale SA said Monday it
will sell most of its fertilizer business to U.S.-based The Mosaic
Company for around $2.5 billion, the latest step in its effort to
pay down debt amid the commodity downturn.
The deal brings an end to Vale's one-time hopes of capitalizing
on global population growth by producing the fertilizers needed to
cultivate crops.
For Mosaic, the acquisition represents a key foothold in one of
the world's largest fertilizer markets and should help feed
existing distribution networks in Brazil, said Floris Bielders,
Mosaic's Brazil president.
"If you want to grow in agriculture and fertilizers it has to be
in Brazil," Mr. Bielders said in an interview. "It's the
fastest-growing market and with the most upside to continue to
grow."
Vale, the world's largest producer of iron-ore and nickel, had
identified fertilizer ingredients as a strategically important
business several years back. But it never got off the ground,
accounting for just 8% of Vale's overall revenue in the third
quarter and posting negative earnings before interest and
taxes.
The biggest setback came in 2013, when Vale indefinitely
suspended a $5.92 billion potash-mining project in Argentina, known
as Rio Colorado, due to high costs and political difficulties.
By this year, Vale's finances were growing precarious as
iron-ore prices crashed and the company struggled with the fallout
of a major disaster at its Samarco joint venture in November
2015.
Rumors have swirled for months that Mosaic could buy the
fertilizer business from Vale, with local news reports putting the
price tag at $3 billion.
Vale stock fell sharply after the deal was announced for less
than expected, with preferred shares recently trading 5.3% lower at
23.03 Brazilian reais.
The sale should nevertheless ease Vale's debt load and help the
company to focus on its core iron-ore business, said Pedro Galdi,
an investment analyst at Upside Investor.
"Vale wanted to get out of this business," Mr. Galdi said.
Mosaic and Vale expect to close the deal at the end of 2017.
Half the transaction amount should be paid to Vale in cash and the
other via the issuance of an estimated 42.3 million shares in
Mosaic, equivalent to about 11% of the latter company's
capital.
Excluded from the deal are nitrogen and phosphate assets in
Cubatão, Brazil, which generated cash flow of $108 million in 2015,
Vale said. The company expects to explore options for the Cubatão
assets next year.
Write to Paul Kiernan at paul.kiernan@wsj.com
(END) Dow Jones Newswires
December 19, 2016 14:37 ET (19:37 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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