Saskatchewan must have role in Mosaic deal: Wall

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As Mosaic Co. prepares for life as an independent company, there's an influential player in Saskatchewan who admits he is largely powerless in shaping the future ownership of the province's No. 2 potash producer.

That man is Brad Wall, the Saskatchewan Premier whose passionate campaign against a deal for industry leader Potash Corp. of Saskatchewan Inc. last fall helped kill BHP Billiton Ltd.'s takeover ambitions.

Mosaic's controlling shareholder, Cargill Inc., announced Tuesday that it is spinning off its controlling 64-per-cent stake in a deal worth about $24-billion (U.S). The move is expected to make Mosaic, which operates three large potash mines in Saskatchewan, a potential takeover target.

Australia's BHP and Brazil's Vale SA are considered to be the likeliest bidders. Both companies are interested in increasing their exposure to potash, a key crop nutrient that is in high demand from Asian countries looking to increase their food production, and Mosiac, like Potash Corp., has access to Saskatchewan's massive reserves, which are expected to last hundreds of years.

Mr. Wall's argument against the BHP-Potash deal - that it did not represent a net benefit to Canada - helped persuade the federal government to reject the takeover. But Mr. Wall would not have that leverage in a Mosaic takeover because the company is based in Plymouth, Minn., and a purchase would not be subject to a review by Investment Canada.

"You remember in the BHP Billiton deal we had a three-part concern with respect to the net benefit test, which would not be applied in this case likely because it is not a foreign takeover," Mr. Wall told reporters Wednesday. "But still it's important to us and those net benefits tests include revenue, include jobs and include the strategic interests of the province."

Mr. Wall said the province would still try to be involved in a takeover of Mosaic and would make a case to bidders about the net benefit issues. "Remember those jobs are here in part because of incentives we have put into the potash royalties," he said. He added that the outcry over BHP's bid last Fall has also shown Mosaic bidders "the focus that the government and the people of Saskatchewan have on wanting to maximize the benefit of this potash resource and that includes head office locations and jobs."

In the short term, Mr. Wall said he did not expect any changes at Mosaic's operations and he remained confident the company will follow through with a promise made last summer to locate its potash headquarters in Regina, which involves about 120 positions. Mosaic produces about 10.4 million tonnes annually, mainly from Saskatchewan. Potash Corp. produces about 12 million tonnes.

Jim Prokopanko, Mosaic's chief executive officer, said BHP might consider a bid for Mosaic but any takeover would be handled differently than BHP's offer for Potash Corp. "We don't believe that the Investment Canada rules apply to Mosaic as they did to Potash Corp.," he said in an interview.

BHP "will be interested but they've taken a run [at Potash Corp.]and market forces will decide," he added.

"But I think this train has left the station for a period of time and it's not going to be inexpensive to acquire a crop nutrient company with the grain and oil seed fundamentals that we are seeing in the world today."

BHP officials declined comment.

Mr. Prokopanko stressed that he doesn't believe Mosaic is now in play. "We think we can create the greatest value by running the company as we've been running it and growing the company to meet the world's growing demands for more food," he said.

Mosaic spent about two years working with Cargill on the share sale. The move was prompted by the death in 2006 of Margaret Cargill, granddaughter of company founder William Cargill and one of the largest owners of the privately-held agribusiness. Most of Ms. Cargill's shares have been held in a charitable foundation and the charity has been pushing to realize on the holding. Under the Cargill transaction, the charity will exchange all of its Cargill shares for 110 million Mosaic shares and then sell those shares in the market on a tax-free basis. Other Cargill shareholders will also unload their shares and in total 157 million Mosaic shares will hit the market over the next couple of years.

Cargill considered several other alternatives and analysts believe BHP and others made a pitch to buy its Mosaic stake. In the end, Cargill opted for what is known as a share "split-off" with its subsidiary.

Mosaic and other fertilizer companies have benefited from a recent jump in prices for many agricultural commodities, due mainly to poor crops in North America, Europe and Australia. Mosaic's share price has roughly doubled since last July and the company is worth about $34-billion.

That's a far cry from when Mosaic was created in 2004 through the merger of Cargill's $2-billion crop nutrient business and IMC Global Inc., a Chicago-based potash company that owned the three Saskatchewan mines. IMC had not turned a profit in more than five years prior to the merger. By contrast, Mosaic is now second only to Potash Corp. in the fertilizer business and it recently reported a $1-billion profit in the latest quarter, a tenfold increase from a year ago.

One potential concern for Premier Wall is the fate of Canpotex Ltd., a Saskatoon-based company that markets Saskatchewan potash overseas. Canpotex is owned by Mosaic, Potash Corp. and Agrium Inc. of Calgary and Mr. Prokopanko is the current chairman. BHP hinted it would pull out of Canpotex if it took over Potash Corp., arguing Canpotex's cartel-like structure is outdated. That infuriated Mr. Wall who pushed for Canpotex to remain intact.

A takeover of Mosaic could threaten Canpotex's future since a new owner might also want to pull out of the venture, said Sylvain Charlebois, a professor at the University of Guelph's College of Management. "It does create an interesting predicament," he said. "The Canpotex model relies on the commitment of the three majors."

The Chinese in particular could take a run at Mosaic and then drop out of Canpotex, Mr. Charlebois said. "They are interested in looking at potash deposits in general. They want to have access to it because they need it."