The Financial Times (FT) Thursday reported that Brazilian mining giant Vale plans to take its fertilizer unit private, offering to buy out minority shareholders for R$2.2bn (US$1.4bn) at a critical time both for the company and the industry.

According to FT, fertilizers have become an increasingly important strategic asset for the Latin American country as it looks to consolidate its position as one of the world’s agricultural powerhouses.

In a statement late Wednesday, the company ruled out previous plans to sell stock in its fertilizer division and said it instead had chosen to privatize Vale Fertilizantes, giving Vale greater control over its subsidiary, said FT.
 
The company would offer shareholders a cash price of R$25 per share, equivalent to a 32 per cent premium over Wednesday’s closing price, according to the proposal which is yet to be approved by the board of directors.

Vale said the move will help maximize shareholder value by “consolidating the fertilizer assets in order to capture the existing synergies within Vale’s asset portfolio”. However, the privatization offer comes at a sensitive time for the company, reported FT.

According to the FT report, speculation has been rife that Vale’s former chief executive, Roger Agnelli, was replaced for resisting government pressure to do more to promote greater use of domestic content in Vale’s operations and for the company to become more involved in areas of national interest.

The fertilizer industry is viewed as key to Brazil’s emergence as an agricultural superpower to rival the US. Brazil is the biggest grower of sugar cane, coffee and oranges and a major producer of soymeal, the FT report indicated.

Vale Fertilizantes posted on its website that since Brazil still imports over 50 per cent of the fertilizer inputs it consumes, the company’s challenge is to increase its production capacity so as to reduce the country’s dependence on these imports.

Vale, which plans to triple its production of potash and phosphate rock by 2015, purchased assets last year of $5.8bn related to the fertiliser industry. This included $1.03bn for just over 20 per cent of Fosfertil, Brazil’s biggest fertiliser producer and $3.8bn for the Brazilian assets of Bunge, the international agricultural commodities trading house.
 
Bunge’s assets included a 42.3 per cent stake in Fosfertil, which brought Vale’s share of the company up to 79 per cent. Vale also has potash and phosphate mines in Argentina, Peru, Canada and other countries.

23rd June 2011