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Mosaic enters talks to buy Vale's fertilizer unit, potentially valued at as much as $3 billion: sources

The bucket of a drag line unearths phosphate at the Mosaic Co. South Fort Meade phosphate mine in Fort Meade, Florida, U.S., on Thursday, July 9, 2015.
Ty Wright | Bloomberg | Getty Images
The bucket of a drag line unearths phosphate at the Mosaic Co. South Fort Meade phosphate mine in Fort Meade, Florida, U.S., on Thursday, July 9, 2015.

Mosaic, the world's top producer of concentrated phosphate, has entered talks to buy Vale's fertilizer unit, in a renewed push to grow in South America and Africa, three sources with direct knowledge of the matter said.

Although both companies are discussing what structure would best suit their interests, the first source said a cash-and-stock deal remains the favorite option at this point.

The same source, who requested anonymity because talks are under way, said the value of Vale's fertilizer assets could reach $3 billion.

Mosaic and Vale are also discussing other alternatives for the deal, the other two sources said, without elaborating.

Under terms of the first option, Rio de Janeiro-based Vale would become Mosaic's biggest shareholder, with a stake between 12 and 15 percent depending on the size of the deal's stock portion, the first source said.

The companies declined to comment.

Plymouth, Minnesota-based Mosaic is on the lookout for phosphate or potash assets that could be bargain-priced in a weak commodity sector, Chief Executive Officer Joc O'Rourke said in February. Falling prices of phosphate and potash, however, have dragged down profit this year.

Vale has fertilizer assets in Canada, Brazil, Peru, Argentina and Mozambique. Mosaic bought distribution assets from Archer Daniels Midland in Brazil and Paraguay last year.

In Brazil, the world's fifth-largest fertilizer consumer, demand is expected to grow twice as fast as global demand until 2025. Fertilizer sales in Brazil in the first 10 weeks of this year doubled from the same period a year earlier.

Debt

Vale is selling assets to help meet a $10 billion debt-reduction target by next year. The strategy was devised by Chief Executive Officer Murilo Ferreira to help insulate the mining company against declining iron ore and nickel prices.


Vale posted a record annual loss last year of $12.1 billion.

Adjusted earnings before interest, tax, depreciation and amortization at Vale's fertilizer unit more than doubled last year to $567 million, partly helped by a weaker currency and lower costs.

The talks with Mosaic come two months after Vale failed to create a large player with Apollo Global Management. On April 28, Reuters reported that Vale and Apollo planned a venture should they succeed in the purchase of rival Anglo American's fertilizer operations in Brazil.

According to the second source, Mosaic had previously made a bid for 100 percent of Vale's fertilizer unit, which the Brazilian company rejected because it wanted to team up with Apollo.

Clinching the Anglo American deal was a precondition to form the venture with Apollo, the $170 billion buyout firm run by financier Leon Black, sources said at the time.

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