Mosaic deal frees up cash for Cargill's charitable trusts

Cargill Inc. said Tuesday that it will spin off its $24 billion stake in fertilizer giant Mosaic Co. in a deal that frees up cash for a Cargill family foundation without requiring the company to go public.

The late Cargill heiress Margaret Cargill's charitable trusts would clear nearly $10 billion over several years at Mosaic's current stock price.

The deal also allows Minnetonka-based Cargill, one of the world's largest privately held companies, to pay down about $9 billion in debt. Plymouth-based Mosaic, a Fortune 500 company in its own right, becomes fully independent for the first time.

"The transaction will accomplish a number of important business objectives for both Cargill and Mosaic and is in the best interests of both companies, said Cargill Chief Executive Greg Page in an announcement.

It's a boon for the previously low-profile foundation, allowing it get into full-scale grant-making mode this year. "This is a great day," said Sally Gaines, a spokeswoman for the Eden Prairie-based Margaret Cargill Foundation. "We are very happy here."

Cargill, a global agribusiness colossus with more than $100 billion in annual revenue, spun off its fertilizer operations into Mosaic in 2004, but retained a 64 percent ownership stake. Mosaic, which currently brings in about $7 billion in yearly sales, instantly became the country's largest fertilizer producer.

The company has been a rewarding investment for Cargill. Mosaic's shares have risen 407 percent since it went public in 2004. And Mosaic represented 44 percent of Cargill's $1.49 billion in profits in the most recent quarter.

A family dilemma

But while Mosaic's business was burgeoning over the past four years or so, Cargill was grappling with a major shareholder issue: How to free up cash for Margaret Cargill's trusts so they could go about their charitable mission.

Margaret Cargill, who died in 2006 at age 85, was the granddaughter of William W. Cargill, who founded Cargill in 1865. She was one of the nation's richest women, but the bulk of her assets have been tied up in Cargill stock.

Cargill could have simply bought her stock. But that would have put a damper on Cargill's business objectives, even with its very deep pockets.

"For us to remain a viable, growing company takes a significant amount of cash, and to take that to buy back stock would restrict our growth," Page said in an interview. So Cargill explored "a laundry list of choices" to solve the problem, Page said.

The company is largely owned by the descendants of William Cargill and his son-in-law, John MacMillan, who took over when William Cargill died in 1909. For decades, the family has resisted cashing out by transforming Cargill into a publicly held company.

The tax-free transaction calls for 110 million shares of Mosaic -- 38 percent of Cargill's overall stake in the firm -- to be distributed to Margaret Cargill's charitable trusts. Another 69 million shares will go to other Cargill shareholders.

A third tranche of Cargill-owned Mosaic stock -- 107 million shares -- will go to Cargill debt holders.

At Mosaic's current share price of about $85, that's around $9 billion, which would significantly improve Cargill's credit profile, said David MacLennan, Cargill's chief financial officer.

Cargill's debt holders are expected to sell much of their holdings within 15 months after the deal closes, while Margaret Cargill's trusts are likely to sell about 50 million shares during that period.

'A stronger hand' at Mosaic

For Mosaic, CEO Jim Prokopanko said the transaction improves long-term financial flexibility, without any negative impact on its financial condition, its stock or its underlying operations.

"This gives us a stronger hand to control our own destiny," he told stock analysts in a conference call.

With Cargill exiting, there will be a greater supply of shares available on the open market, which could attract more investors.

Also, Prokopanko said that while Cargill has essentially left Mosaic alone, there was the potential for a divergence in their views, particularly regarding any acquisitions by Mosaic. "As we grow and they grow, you could hypothesize differing interests," he said in an interview.

However, the complex tax-free structure of the Cargill deal would make any play for Mosaic "cumbersome" in the short term, Prokopanko said.

Pursuant to a ruling from the U.S. Internal Revenue Service, the transaction is expected to be tax-free to Cargill, Mosaic and their respective shareholders. The transaction is expected to close in the second calendar quarter of 2011.