Vale agrees $2.5 billion sale of fertilizer business to Mosaic

A view shows the company logo of Brazilian mining company Vale SA at its headquarters in downtown Rio de Janeiro August 20, 2014. REUTERS/Pilar Olivares/File Photo

Vale SA agreed to sell part of its fertilizer business to Mosaic Co for $2.5 billion, in a move aimed at helping the world’s largest iron ore producer cut debt and focus on core mining activities.

Vale will receive $1.25 billion in cash and $1.25 billion in newly issued shares of U.S.-based Mosaic, a roughly 11 percent stake in the firm, the Rio de Janeiro-based company said in a Monday securities filing.

After the deal closes by late 2017, Vale will have the right to pick two members of Mosaic’s board, the filing said.

On June 17, Reuters was first to report on the Mosaic’s talks with Vale to reach a deal to buy the latter’s fertilizer unit.

According to the filing, Vale will retain control of its nitrogen and phosphate fertilizer assets in the city of Cubatão, in southeast Brazil but expects to sell them in 2017. Sources with knowledge of the deal told Reuters in October that Vale was also in talks with Norway’s Yara International ASA to sell some of its fertilizer assets.

Mosaic will acquire the rest of Vale’s phosphate assets in Brazil, Vale’s stake in Peru’s Bayóvar mine and Canada’s Kronau potash project. Mosaic has yet to decide whether to include the Rio Colorado potash project in Argentina in the acquisition.

Mosaic may pay an additional $260 million depending on future earnings of the fertilizer unit, the filing said. Vale will not be allowed to sell Mosaic shares for two years.

Analysts at Banco BTG Pactual estimate Mosaic is paying 8.6 times the fertilizer division’s earnings before interest, taxes, depreciation and amortization, a gauge of operational profit.

“This is an attractive multiple for Vale”, the analysts said in a client note.

Vale shares edged up slightly in choppy early trading.

Vale, the world’s largest iron ore miner, is disposing of assets to help meet a $10 billion debt-reduction target by next year. The plan was devised by Chief Executive Murilo Ferreira to help protect the mining company against lower iron ore and nickel prices, after losing a record $12.1 billion last year.

Vale said it will use the funds raised with the sale to cut debt, while continuing its divestment program.

Preferred shares in Vale have advanced 140 percent so far this year to 24.33 reais, surpassing a 35 percent rally in Brazil’s benchmark Bovespa stock index.