Why is Cargill Selling its Stake in Mosaic?

Montreal, Canada

Back in 2002, I plugged the Mosaic Corporation (NYSE-MOS) after Cargill Inc. took the fertilizer company public. Cargill is THE commodity house in the world. I don’t think anyone does a better job managing its commodity business than Cargill, a private company founded just after the American Civil War.

Though I sold MOS before the credit crisis, I regret dumping the stock too early. From 2002 until now Mosaic has posted a cumulative eightfold advance.

Potash is a hot commodity. Amid a growing food crisis compounded by the worst grain harvests in more than two decades in Russia and elsewhere, farmers are increasing their orders for the popular fertilizer as crops become a precious and expensive commodity. Two years ago, the price of potash collapsed following the peak in the commodity prices in July 2008. Prices have since recovered.

Yesterday, Cargill Inc. announced it was selling its 64% stake in Mosaic, a process that will take a year because of its intricate and complex involvement in the company. That investment is now worth $24 billion dollars.

The province of Saskatchewan, home to Mosaic’s prized fertilizer properties, will be up for grabs.

Billiton Shot Down by Provincial Government

Late last year, Australia’s BHP Billiton (NYSE-BHP) was shot down by the Saskatchewan provincial government after making a hostile bid for Potash Corporation (NYSE-POT). There’s no doubt BHP and others will vie for a controlling stake in Mosaic. Potash is a Canadian company. Mosaic is based in the United States.

But one has to wonder why Cargill is selling its majority stake in Mosaic? Isn’t potash a great long-term bet as world water tables continue to fall further pressuring grain yields? Population growth alone makes a compelling case for potash because the latter boosts farm output.

Cargill is getting out Dodge for a reason. Mosaic is a gem. Perhaps the world’s largest privately-owned commodity house sees a top in the market or simply wants to book a huge profit. Either way, it’s picking a great time to unload MOS, which is sitting on $3 billion dollars in cash.

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