Cargill's plan to spin off its holding in Mosaic Co., the world's second largest potash producer, could spark some action in mergers and acquisitions.
Mosaiccould end up a target of a super-major, as Potash Corp. of Saskatchewan was, once control is in the market. At a current market cap of $38-billion (U.S.), there are a few companies that could make a run, and Mosaic has been mentioned in the past as an acquisition target.
But even if that doesn't happen, a more nimble Mosaic that doesn't have to worry about diluting Cargill's control or weighing down its balance sheet can compete for more acquisitions. Those who have dealt with Mosaic on potential acquisitions have pegged the company as a slow mover, in part because of Cargill's control.
Perhaps then it's no surprise that Mosaic has been very quiet on the acquisition front for years, focusing instead on expansion of its current mines. A search of all its transactions in the past five years reveals exactly one purchase of any substance, a $385-million acquisition of a stake in a phosphate rock mine in Peru from Vale SA. After that, it's a long way down to the 2005 purchase of some "equipment and spare parts" for $32-million.
These days, the company has significant resources, with about $3.66-billion of cash on the balance sheet as of Nov. 30, the end of the company's second quarter. The shares are already rising on the spinoff news to reflect the fact that there's now a takeover premium in the stock, bringing down Mosaic's cost of capital.
And any fetters on management from Cargill will be off.
Mosaic chief executive officer Jim Prokopanko laid out the priorities for the company's cash when asked about the priorities for that cash on the quarterly conference call. First, get a rock solid balance sheet. Check, as he said that Mosaic is "well past that sound and secure level."
The second is to fund that brownfield and internal growth, and "we're doing that with operating cash flow."
That leaves M&A, "and if something were to come along we'd be prepared to look at that." But, he said that if there's nothing to buy, shareholders can look to get some cash back.