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Trains cars filled with phosphate pebbles leave Mosaic's South Fort Meade Mine in Fort Meade, Florida January 13, 2010.

SCOTT AUDETTE/REUTERS

Mosaic Co. agreed to buy Vale SA's fertilizer unit for $2.5-billion (U.S.) in cash and stock to become the largest fertilizer producer in Brazil.

Half the price will be paid in cash and the other half in new shares, giving Vale an 11-per-cent stake in Mosaic and two seats on its board. The transaction is expected to close late next year, pending regulatory approvals, Plymouth, Minn.-based Mosaic said Monday in a statement.

The deal comes amid a wave of consolidation in the global agricultural seeds and crop-chemicals industry, with Bayer AG planning to acquire Monsanto Co., while Dow Chemical Co. and DuPont Co. intend to spin off a new farm-focused business after they merge. In fertilizers, two of Mosaic's biggest rivals, Canada's Agrium Inc. and Potash Corp. of Saskatchewan Inc., said in September that they plan to combine in a $12.9-billion deal.

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Mosaic's acquisition, its biggest since the company was formed in 2004, will extend its position as the world's largest producer of phosphate crop nutrients, adding production and distribution assets across Brazil, which is the world's leading exporter of soybeans, coffee, sugar and orange juice.

While Mosaic already operates a port terminal in Brazil, its mines are in the United States and Canada. Vale's fertilizer business includes a phosphate mine in Peru and a potash mine in Brazil. The acquisition will give it assets including five Brazilian phosphate-rock mines and four chemical and fertilizer production plants, plus a 40-per-cent stake in a Peruvian phosphate mine.

"Long-life, low-cost assets on a delivered basis to large, growing agricultural markets is how you win in this business, no matter what the cycle," Rich Mack, Mosaic's chief financial officer, said on a conference call to discuss the deal. "While market conditions obviously turned downward, it's clear we're acquiring highly valuable and scarce assets at the right time."

For Rio de Janeiro-based Vale, the deal brings it closer to a goal of divesting assets that aren't connected to its core iron-ore business, the world's largest. The company has been in talks about selling other assets, and in August it agreed to sell future gold output to Silver Wheaton Corp. for an $800-million upfront payment.

Vale can also earn as much as $260-million in cash in the two years after the completion of the Mosaic deal if certain financial metrics are met, according to the companies.

Vale dropped 2.7 per cent to 23.67 reais at 1:50 p.m. in Sao Paulo while Mosaic was down 3.2 per cent at $28.61 in New York, heading for the biggest decline in a week. On the conference call, Mosaic said it may cut its dividend by as much as 50 per cent if market conditions don't improve in the first quarter of 2017.

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Mosaic expects the acquisition will boost earnings by 5 to 10 cents a share in 2018 and generate about $80-million of after-tax cost savings, according to presentation slides posted on its website. It will finance the deal by issuing $1.25-billion of debt next year.

Approval by Brazilian regulators isn't a concern, as fertilizer prices are defined globally, Mosaic's Brazil CEO, Floris Bielders, said in an interview. Mosaic's market share in Brazil's fertilizer retail sales is seen unchanged at 15 per cent, as the deal involves only producing assets.

The Vale assets have the capacity to produce 4.8 million metric tons a year of finished phosphate crop nutrients and 500,000 tons of potash.

Mosaic will get Vale's 40-per-cent interest in the Miski Mayo phosphate mine in Peru and its Kronau potash project in Saskatchewan, Canada, and the option to include a potash project in Argentina.

The acquisition excludes Vale's Cubatao-based nitrogen and non-integrated phosphate business.

JPMorgan Chase & Co. and UBS AG were Mosaic's financial advisers and Simpson Thacher & Bartlett LLP and Lobo & de Rizzo Advogados were its legal counsel.

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