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Mosaic Wraps Up Phosphate Business Buy

Zacks Equity Research

Mosaic (MOS) has completed its earlier announced takeover of CF Industries’ (CF) phosphate business for $1.4 billion. The fertilizer maker secured the green light from the United States Department of Justice (:DOJ) for the acquisition in Jan 2014.

Mosaic, in Oct 2013, cut a definitive deal to buy the phosphate mining and manufacturing business of CF Industries for $1.2 billion in cash and $200 million to fund CF Industries’ asset retirement obligation escrow.

Under the deal, CF Industries has disposed the Hardee County phosphate rock mine, the Plant City phosphate complex, an ammonia terminal, phosphate warehouse and dock at the Port of Tampa and the site of the former Bartow phosphate complex to Mosaic. The facilities acquired by Mosaic currently produce roughly 1.8 million tons of phosphate fertilizer per year.

Mosaic and CF Industries also entered into a long-term ammonia supply agreement, under which, the latter will supply ammonia to Mosaic from its Donaldsonville, La., nitrogen complex. CF Industries will also supply ammonia to Mosaic from its 50% owned Point Lisas Nitrogen Ltd. (:PLNL) facility in the Republic of Trinidad and Tobago.

Under the Donaldsonville ammonia agreement, CF Industries will supply between 600,000 and 800,000 tons of ammonia per year for up to 15 years, which is expected to begin by 2017. The ammonia to be supplied will be used for phosphate production and its price will depend on the cost of natural gas delivered to Donaldsonville.

The buyout expands Mosaic’s phosphate business and production capacity of the nutrient in Florida. It also complements the company’s plans to mine phosphate rock reserves in Hardee and Desoto counties and expansions of the existing Wingate mine.

The acquisition will bring Mosaic’s annual phosphates capacity to more than 11 million tons. It is also expected to add roughly 30 cents per share to Mosaic's earnings per share in 2015 and provide meaningful operational synergies.

Mosaic financed the purchase with cash, a part of which it plans to replace with pre-payable intermediate term debt financing. The company plans to repay this debt financing as it generates excess free cash flows.

Mosaic, which is one of the leading fertilizer makers along with Potash Corp. (POT) and Agrium (AGU), is well placed to leverage the rising global demand for grain and oilseeds.
Mosaic is a Zacks Rank #3 (Hold) stock.

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