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CF Sells Phosphate Biz to Mosaic, Shares Up

CF MOS SMG

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Shares of CF Industries Inc. (CF - Analyst Report) rose around 5% during the trading session following the news that it has signed a definitive agreement to sell its phosphate mining and manufacturing business to fertilizer producer The Mosaic Company (MOS - Snapshot Report) for $1.4 billion in cash (including $200 million to fund CF Industries’ asset retirement obligation escrow).

CF Industries has agreed to dispose the Hardee County phosphate rock mine, the Plant City phosphate complex, an ammonia terminal, phosphate warehouse and dock at the Port of Tampa and the site of the former Bartow phosphate complex to Mosaic.

Under the deal, Mosaic will be shouldering responsibilities related to the closer of the agreement and long-term maintenance and monitoring of the phosphogypsum stacks at the Plant City and Bartow complexes. The facilities to be acquired by Mosaic currently produce roughly 1.8 million tons of phosphate fertilizer per year

The deal is also subjected to a long-term ammonia supply agreement, under which, CF Industries will supply ammonia to Mosaic from its Donaldsonville, La., nitrogen complex, and another agreement to supply ammonia to Mosaic from CF Industries’ 50% owned Point Lisas Nitrogen Ltd. (PLNL) facility in the Republic of Trinidad and Tobago.

Under the Donaldsonville Ammonia Agreement, CF Industries will supply between 600,000 and 800,000 tons of ammonia per year for up to 15 years, which is expected to begin by 2017. The ammonia to be supplied will be used for phosphate production and its price will depend on the cost of natural gas delivered to Donaldsonville. The agreement is however not conditional on the phosphate sale transaction.

The Trinidad ammonia agreement is conditional on the phosphate sale transaction and will be effective after the closure of the deal. Pricing of ammonia, under the deal, will be in sync to the existing agreement under which CF Industries purchases ammonia from PLNL.

Both companies’ Board of Directors has approved the transaction. The deal is subject to customary closing conditions and necessary regulatory approvals including the expiration or termination of the waiting period under the Hart-Scott-Rodino Act and certain environmental related approvals for the phosphate business. The deal is expected to complete by 2014.

CF Industries, headquartered in Deerfield, IL, is one of the largest manufacturers and distributors of nitrogenous and phosphatic fertilizer products in the world. The company’s principal products in the nitrogenous fertilizer business are ammonia, granular urea, urea ammonium nitrate solution (UAN) and ammonium nitrate (AN).

CF Industries currently retains a Zacks Rank #3 (Hold) and is scheduled to release its third-quarter 2013 results on Nov 4.

Other companies in the fertilizer industry worth considering are China Bluechip ADR and The Scotts Miracle-Gro Co. (SMG - Snapshot Report). Both hold a Zacks Rank #1 (Strong Buy).

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