The Mosaic Co. (NYSE: MOS) is finally about to be free from its shackles.  We are just about to get past the long-awaited spin-off of this whopping 100 million shares that have been effectively held by Cargill.  The price comes to some $6.6 billion or so at today’s prices, yet Mosaic is worth about $29.6 billion.

The performance of the last three-months has shares down over 20%.  As far as how this compares to peer stocks, in the last three-months we have Potash Corp. of Saskatchewan (NYSE: POT) down only about 12%, CF Industries Holdings, Inc. (NYSE: CF) is down only about 5%, and even Terra Nitrogen Company, L.P. (NYSE: TNH) is down only about 6% or so.  Intrepid Potash, Inc. (NYSE: IPI) has actually performed worse than MOsaic in the last 3-month period but it has a market cap of only about $2.2 billion.

It was back in January when the Cargill sale was first telegraphed, and many investors were not even aware that Cargill’s stake was so huge.  Mosaic shares were above $88.00 as recently as February and the stock has lost more than one-quarter of its value since then.  The game-changing event for the entire potash and fertilizer valuation was when Potash Corp. of Saskatchewan, Inc. (NYSE: POT) was given a $38+ billion buyout offer by BHP Billiton Ltd. (NYSE: BHP).  This changed the valuation metrics and our take is that the Cargill owners decided to capture what the could while they could.  Mosaic is also a part of the Market Vectors Agribusiness ETF (NYSE: MOO).

Mosaic and Potash Corp. of Saskatchewan (NYSE: POT) have litigation together as Mosaic said it believes it is not under obligation to deliver potash to Potash Corp. from the Esterhazy mine other than PCS’s remaining inventory.

Mosaic announced the approval for the secondary offering as a spin-off earlier this month.  The 100 million shares of common stock relate to Cargill’s exchange of its roughly 64% interest in Mosaic with Cargill stockholders and certain debt holders. This offering is expected to be about 92.5 million shares owned by Cargill’s debt holders following a debt-for-equity exchange and another 7.5 million shares owned by a charitable trust and foundation formed through the estate planning of Margaret A. Cargill.

The leaders in the share sale are Credit Suisse, J.P. Morgan, and UBS.  Those underwriters have been given a 30-day overallotment option to purchase up to 15 million additional shares from the selling stockholders.

It is surprising that the sale is being done on a Friday.  So, what do we expect from Mosaic now?  At $66.21 after a 3.3% sell-off on Thursday, the 52-week range for Mosaic shares has been $37.68 to $89.24.  Mosaic shares broke under the 200-day moving average early last week per the stockcharts.com chart and now shares are flirting with the lowest prices since last December.

Where the stock trades ahead may depend upon the pricing of the shares.  The good news is that Mosaic was above $70.00 as recently as last week and shares were above $77.00 one month ago.  Unlike dilutive offerings, these shares had already been counted in the fully diluted amount even if they were not a part of the free-float.  This move will also make the Plymouth, Minnesota-based Mosaic shares likely more eligible for index inclusions here in the U.S.

If a substantial discount comes in Mosaic shares tomorrow, then this selling will have been far too much for the extra float.  The overhang will have finally settled by early next week, and it would be easy to expect that shares could get back up to $70 or even $72 before profit taking from the new shareholders absorb so much stock.  Thomson Reuters still has a consensus price target of about $85 per share on the stock.

JON C. OGG

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