Soleil’s Gulley & Associates is out with a noteworthy call on Mosaic (NYSE:MOS) noting that Cargill’s four-year standstill re Mosaic expires this Wednesday. The expiration sets up the possibility that Cargill could accept the gift that “Mr. Market” is presenting: accretively
increasing its ownership stake in Mosaic.

How accretive? Buyout of the 35% minority stake could boost Cargill earnings by more than 20%, given the fact that Mosaic is currently trading at just 2.7x consensus calendar 2009E EPS of $12.25.

Knowledgeable buyer. Given Cargill’s extensive knowledge of the global grain markets, any action it takes with respect to its Mosaic ownership position will be closely watched. Cargill is a leading global grain processor and one of the largest private companies in the U.S., with F2008 sales of $120 billion and net income of $4 billion.

Mosaic shares are down 80% from the mid-June peak of $163, during which time the S&P 500 is down 30%. With Mosaic’s equity market cap of just $15 billion, down from the peak of $72 billion, the 35% owned by the public is currently worth just $5 billion, down from the peak of $25 billion.

Mosaic currently accounts for roughly half of Cargill earnings:
- Cargill reported 1QF09 net profit of $1.5 billion
- Mosaic reported 1QF09 net earnings of $1.2 billion; 65% of which is $0.8 billion, approximately half of Cargill’s $1.5 billion.

Quoting from Mosaic’s F2008 10-K filing filed July 29, 2008:
“Standstill provisions in our Investor Rights Agreement with Cargill restrict Cargill from acquiring additional shares of our common stock from our public stockholders and taking other specified actions as a stockholder of Mosaic. These restrictions will expire on October 22, 2008. Following the expiration of the standstill period, Cargill will be free to increase its ownership interest in our common stock.”

With Mosaic currently trading at a P/E of just 2.7x, Cargill’s buyout of the minority interest it
doesn’t own should be highly accretive to its net earnings. Firm ran twocases, at $50 and $82.5 per Mosaic share.

Maintains Buy and $127 tgt on MOS.

Notablecalls: This call sets up MOS as a short-term Actionable Call. I think the Cargill (65% owner of MOS) thing has gone unnoticed by the market here and will be in the spotlight as the standstill expires this week.

I think the stock could trade towards the $40 level as soon as today (with a little help from the market). I really think this comment can produce an explosive move in MOS this week as words starts spreading. Would be an ideal reason or a way to put some fire under the shorts.

Tags for this Post:
Cargill, grain processor, Market Commentary, Mosaic, Soleil's Gulley & Associates, Sp 500, United States, USD