Cargill and Mosaic Split-Off

SPLIT-OFF

The split-off between Cargill and Mosaic will be a 286million tax-free transaction that was announced on January 18th, 2011 and that will release 64% stake that Cargill has over Mosaic.

Cargill is an international producer and marketer of food, agricultural, and industrial products and services founded in 1865. The company is the largest privately held corporation in the United States and their main focus is purchasing, processing, and distributing grain and other agricultural products.

Mosaic, is a leading producer of concentrated phosphate and potash crop nutrients with the unique ability to deliver large amounts of product with short notice. They control a major part of the production of phosphate and have 58% of the US market share. Barriers to entry to this market are high since initial investments to extract these minerals and make mines operational are around $2.5 Billion.

Although the aim of both companies is related, the split-off is going to be beneficial because of 3 reasons:

1. The transaction will improve Cargill´s credit rating

2. Cargill will be able to focus on the core business

3. Mosaic will improve its independence and long-term strategic planning

The transaction will improve Cargill´s credit rating

Mosaic Corporation operated in a capital intensive business that requires heavy machinery and equipment for its operation, as well as large amounts of operating working capital. On the other hand, Cargill plays the role of the “trader” of the industry and needs capital to materialize the exchanges (buy-sell transactions).

Cargill commercializes Mosaic products and is also is a customer. Most of Cargill´s agricultural products that require nutrients use Mosaic supplies. Both companies have correlated business, but they operate in different roles. For this reason is beneficial for Cargill to remove more than $20.0 billion dollars from the liabilities associated with Mosaic acquisition and allowing the company to...