Mosaic shares drop on Cargill stock-sale plan
SAN FRANCISCO (MarketWatch) — Mosaic Co. shares fell more than 10% on Wednesday, a day after the fertilizer company announced that privately held agricultural giant Cargill plans to bail out as its top stakeholder.
/quotes/comstock/13*!mos/quotes/nls/mos MOS 76.20, +0.05, +0.06%
Cargill, which owns a 64% stake in Mosaic /quotes/comstock/13*!mos/quotes/nls/mos (MOS 76.20, +0.05, +0.06%) , said Tuesday that it will sell its 286 million shares, according to a joint statement from both companies.
The sale would be valued at more than $24 billion at Tuesday’s closing prices.
Mosaic shares have rallied 21% in the past year, riding a boom in commodity-related stocks. But the stock dropped $8.92 to close at $76.15 on Wednesday, as Wall Street analysts offered mixed reviews of the deal.
Cargill said the transaction will enable the company to remain private while meeting the diversification and distribution needs of the charities formed by Margaret Cargill, one of the company’s biggest stakeholders.
For Mosaic, the deal is expected to improve its financial flexibility and increase the liquidity of its common stock, but Goldman Sachs analyst Robert Koort said he sees both bad and good in the news.
The positives for Mosaic include “improved liquidity, potential incorporation into the S&P 500 /quotes/comstock/21z!i1:in\x (SPX 1,282, -13.10, -1.01%) , independence, flexibility,” while the downside is Mosaic’s inability to return cash to shareholders, he said.
Earnings don't inspire stocks
Apple and IBM report record results, but the stock market doesn't seem impressed, as Goldman Sachs's earnings and the latest housing data fail to inspire. John Shipman, Kathleen Madigan and George Stahl report.
Koort added that the likelihood of a takeout and the related upside that would bring in the next two years are diminished with the sale.
Morgan Stanley analyst Vincent Andrews had a more bullish take on Mosaic stock, reiterating his overweight rating regardless of the near-term lull.
“While it is reasonable to assume that Mosaic’s shares could underperform in the near term as the market digests [the] news, we expect the market to ultimately conclude that the transaction is a net positive,” he said in a note, adding that the deal has no impact on Mosaic’s fundamentals and earnings.
Citigroup analyst P.J. Juvekar stood by his hold rating on the shares, pointing to some short-term volatility and better options in the sector.
“We remain bullish on the North American fertilizer producers, particularly as the lagged impact of higher prices begins to flow through to earnings,” he said. Potash Corp. /quotes/comstock/13*!pot/quotes/nls/pot (POT 166.17, -0.64, -0.38%) , Mosaic’s primary rival, is Juvekar’s top choice in the group.
Potash shares drifted almost 4% lower to $166.81 but have jumped 45% in the past year.
Mosaic could become another takeover target at some point, considering the recent activity in the sector. BHP Billiton /quotes/comstock/13*!bhp/quotes/nls/bhp (BHP 90.55, -0.04, -0.04%) made a failed $40 billion attempt to buy Potash, while Russia’s OAH Uralkali announced in December a deal to buy a domestic rival for almost $8 billion.
