Vale will have the potential to earn an additional amount of up to $260 million to be paid in cash over the two-year period following closing if certain financial metrics are achieved. Upon closing the acquisition of Vale Fertilizantes, Mosaic expects to become the leading fertilizer production and distribution company in Brazil, one of the world's preeminent agricultural markets.
“This acquisition provides Mosaic a tremendous opportunity to capitalize on the fast-growing Brazilian agricultural market and from improving business conditions,” said Joc O’Rourke, president and chief executive officer of Mosaic. “We see this as an ideal strategic fit for Mosaic. We have proven expertise in phosphate mining and manufacturing, a strong record of successful acquisition integration, and extensive relationships and experience in Brazil.”
The Mosaic Co., which has been publicly traded since 2004, is a producer and marketer of concentrated phosphate and potash crop nutrients for the global agriculture industry. Vale, based in Rio de Janeiro, Brazil, is a global mining company and also produces fertilizer products. Phosphate and potash, two main inputs for fertilizer, are extracted from the ground through mining processes.
Mosaic plans to fund the acquisition with $1.25 billion in cash, which the company plans to raise through the issuance of debt, and approximately 42.3 million shares of its common stock. The shares of Mosaic common stock to be issued to Vale at closing are expected to represent approximately 11% of Mosaic’s outstanding shares.
The acquisition is expected to be accretive to Mosaic’s earnings per share in 2018, generate over $80 million of after-tax synergies and provide substantial leverage to improvements in the crop nutrient business cycle.
The business to be acquired currently has capacity to produce 4.8 million tonnes of finished phosphate crop nutrients and 500,000 tonnes of potash. It includes five Brazilian phosphate rock mines and four chemical and fertilizer production facilities, as well as one potash facility in Brazil. Through the acquisition, Mosaic also will acquire Vale’s 40% economic interest in the Miski Mayo phosphate mine in Peru, and its potash project at Kronau, Saskatchewan, Canada. Mosaic has the option to include the Rio Colorado, Argentina potash project at closing as part of the transaction. The inclusion of the Rio Colorado potash project in the transaction is subject to Mosaic’s agreement following appropriate diligence. The transaction excludes Vale’s Cubatão-based nitrogen and non-integrated phosphate business, which is required to be carved out of Vale Fertilizantes prior to closing.
“Mosaic has agreed to acquire high-quality and complementary assets in a powerhouse agricultural center that have significant cost advantages at an attractive valuation,” said Rich Mack, executive vice-president and chief financial officer. ”We expect this transaction to be both accretive to earnings and cash flow positive, and we will continue our focus on maintaining a solid investment grade credit rating.”
Mosaic's combined fertilizer business in Brazil will be led by Rick McLellan, currently Mosaic’s senior vice-president, commercial. McLellan led the fertilizer business in Brazil when Mosaic was formed in 2004.
The transaction is subject to receipt of regulatory approvals and satisfaction of closing conditions, including the completion of the carve-out of the Cubatão-based production facilities from Vale Fertilizantes, and is expected to close in late 2017.
The acquisition will add approximately 8,000 employees, bringing Mosaic's global headcount to approximately 17,000.