Mosaic shares sank 11 percent as investors fretted over the company's long-term prospects.
Nonetheless, some stock analysts said that in the long run, the transaction's effect on Mosaic should be neutral or positive.
After markets closed Tuesday, Minnetonka-based Cargill and Plymouth-based Mosaic jointly announced the $20 billion-plus spinoff, which was partially driven by privately held Cargill's desire to free up cash for Cargill family philanthropic efforts without taking Cargill itself public.
Investors in publicly held Mosaic dumped shares, fearing the transaction might create a temporary oversupply of Mosaic stock and take the company off the table as a possible takeover candidate for as much as two years, stock analysts said.
Mosaic's stock closed at $76.15, down $8.92. That shaved almost $3 billion off the value of Cargill's Mosaic stake, which was worth about $24 billion when the deal was announced.
The transaction calls for Cargill's 286 million shares in Mosaic to be distributed three ways: 110 million to charitable trusts in the name of the late Margaret Cargill, 69 million to other Cargill shareholders and 107 million to Cargill debt holders. All three groups are expected to sell their Mosaic shares.
After the deal is closed, which is expected in 2011's second quarter, 157 million of Cargill's Mosaic shares can be immediately put up for sale. That means the number of Mosaic shares available to the public will almost double.
"You will have so much stock coming into the market in the next few months, and that will create an overhang," said Edlain Rodriguez, a stock analyst at Gleacher & Co. Overhang is Wall Street-speak for oversupply, and an oversupply of anything can drive down prices.
Rodriguez and other analysts also said that on Wednesday the stock market was reacting to the notion that the complicated, tax-free Cargill transaction might create roadblocks for any potential acquirer of Mosaic. Merger talk has been rife in the fertilizer business over the past nine months.
BHP Billiton, a huge Australian mining company, made an unsolicited $40 billion bid for Potash Corp. of Saskatchewan, North America's largest fertilizer producer.
Potash Corp. rebuffed BHP, though the firm's quest didn't finally die until the Canadian government rejected the bid last fall.
Perhaps a takeover target
At the heart of fertilizer production is potash and phosphate mining. So mining companies like BHP have taken a shine to fertilizer because of its strong long-term growth prospects.
After the Potash Corp. bid evaporated, speculation turned to North America's second-largest fertilizer maker, Mosaic, which analysts viewed as a tempting takeover target for BHP. Brazil's Vale SA, another mining company, has also been seen as a potential Mosaic acquirer.
Analysts' opinion is split on whether Cargill's exit makes a takeover more or less likely. "The move by Cargill potentially paves the way for a third party to acquire Mosaic, in our opinion,'' wrote Jeffrey Stafford, a Morningstar analyst.
But Mark Connelly, an analyst with Credit Agricole Securities, wrote that "while investors have viewed Mosaic as a potential takeout, this [Cargill] transaction does not appear likely to lead to a sale of the company anytime soon.''
The tax-free nature of the Cargill deal will lead to restrictions on any play for Mosaic, he wrote. "A sale of Mosaic becomes more complicated now, and we continue to expect the company to remain independent."
Still, Connelly and other analysts said the Cargill deal has long-term positives for Mosaic. "Mosaic will have significant strategic and financial flexibility ... which should allow the company to pursue value-enhancing transactions that were not possible previously," Connelly wrote.
Mike Hughlett • 612-673-7003