Columnist Lee Schafer provides short takes on economic incentives and choices, business strategy and performance, market moves, what business leaders are saying and doing and other topics that pique his interest.

Mosaic Deal Leaves Buyback Plan Unchanged

Posted by: Lee Schafer Updated: October 29, 2013 - 10:25 AM

One of the most interesting aspects of the Mosaic Co.’s decision to spend $1.4 billion for phosphate assets in Florida is that the all-cash acquisition isn’t expected to get in the way of its other big capital allocation priority, and that’s buying back stock.

Mosaic was formed by Cargill in part to provide liquidity for certain Cargill shareholders, and it’s less than a month away from that really kicking into gear.  Those Cargill trusts own about 129 million Class A common shares of Mosaic, with restrictions on transfers of the first third of those shares rolling off on November 26.

The company told its analysts and shareholders earlier this month that it wasn’t sure whether the Cargill trusts would “play ball” but that it was intending to buy back stock aggressively with or without the trusts as sellers.  The company suggested up to $4 billion of share repurchases by mid-year next year was possible.

Then it announced a big acquisition, but even with having to fund a $1.4 billion deal its aggressive share repurchase goal seems in reach.

The simple reason is the company just bought assets or secured capacity that it had intended to build.  It was planning to invest more than $1 billion into a green field ammonia plant in Louisiana and construct a second $1 billion plant for its phosphate operations.

In addition to buying the phosphate assets, Mosaic and the seller, CF Industries, have reached a long-term agreement for CF to ­supply Mosaic with ammonia beginning in January 2017. So, Mosaic won’t have to build that ammonia plant in Louisiana.

With the acquisition it’s planning to save the $2.1 billion in capital expenditures, but with the deal it will have to invest $500 million to develop the mine and other assets and an additional $200 million for transportation assets. So the net is $1.4 billion in capital spending savings – the exact amount it is planning to spend on the acquisition.

Look for news after Thanksgiving on the amount of stock Mosaic buys. 

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