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Bunge To Exit Fertilizer
Business As Vale Aims To Become Major Player In Brazil
January 17, 2010
Analysis by: Gary
Drimmer
Analysis of: Agrimoney.com | Debt-heavy Bunge mulls $3.8bn fertilizer
sale
Published at: www.agrimoney.com
Summary
Bunge, the world's largest oilseed processor, has centered a large
portion of it's global agribusiness empire around Brazil, including a
recent major expansion there in sugar and ethanol. Their fertilizer
business was a large money maker a few years ago, but has slipped
drastically. Vale, previously know as Companhia Vale do Rio Doce, is a
major metals and mining operation that has been looking to expand into
fertilizer mining. This is an interesting play with implications for
others as well.
Analysis
Bunge Ltd. is in talks with Vale S.A. for the sale of it's fertilizer
operations in Brazil with a value of up to $3.8 billion. This comes a
year after bidding in a musical chairs began in the US between major
fertilizer companies Agrium, CF Industries and Terra Industries that to
date has not resulted in any mergers. In fact CF Industries dropped it's
bid for Terra as all of these companies' stocks have appreciated
dramatically over the past year. It is probable that Agrium will also
end up dropping it's bid for CF Industries, but we will need to see how
things unfold in the next few months.
Vale S.A. last year did expand last year into fertilizer mining with the
acquisition of potassium assets in Argentina and Canada. It was also
rumored that they were in discussion to acquire Mosaic, a public
fertilizer company, whose main shareholder is Cargill, the largest
Agribusiness company in the world and one of Bunge's main competitors.
Poor fertilizer results have pulled down earnings for the past 18 months
for both companies, with a more significant blow to Bunge as farmers in
Brazil were impacted by lower crop prices and higher fertilizer prices.
Demand for fertilizers for this coming year is improving, but only after
a significant drop in N-P-K prices, and too late for the South American
crop that will be harvested in the next 3 months.
For Vale this is an interesting entry into the phosphate mining and
complete fertilizer market. For Bunge it would be a way to generate cash
and to fund expansions in other markets they consider closer to their
core businesses.
The main asset in Bunge's Brazilian fertilizer portfolio is it's 42.3%
controlling interest of Fosfertil the phosphate mining company, with an
estimated value of $2 billion. Other major shareholders are Mosaic and
Yara (the largest global player). Could this bid spark a bidding war for
these assets? It is doubtful that Cargill would be interested in Mosaic
making such a major bid, though it has the deep pockets to support it.
Yara, who was reported to be looking at Terra last year might be
interested in this expansion as well as to block a major new player
entering the market. Looks like potential mergers and acquisitions in
the fertilizer sector are not dieing, just moving south for this new
year. For those not familiar with this sector, I imagine you are now
totally lost! |
