Bloomberg News

Mosaic May Need to Use Cash to Increase Its Dividend

September 30, 2011

(Corrects company’s location and removes asset reference in ninth paragraph of story published yesterday.)

Sept. 29 (Bloomberg) -- Mosaic Co., the U.S. fertilizer maker formed by a Cargill Inc. unit merger, may need to boost its dividend to satisfy investors who’ve been waiting for a payoff from its cash holdings.

The company, based in Plymouth, Minnesota, has $1 of cash for every $4 of assets on its balance sheet, according to Bloomberg data. That’s double the cash-to-assets ratio of Warren Buffett’s Berkshire Hathaway Inc., which this week unveiled its first share buyback in four decades.

Mosaic can’t use its cash to buy back shares on the open market for two years, under the terms of Cargill’s spinoff of its majority stake. Mosaic is also expected to keep its 5-cent dividend unchanged until 2013, according to a Bloomberg forecast. Its stock, which has dropped 29 percent this year, fell to a 52-week low of $52.61 today in New York.

“There’s no reason not to be more aggressive,” said Jerry Jordan, a Boston-based money manager at Hellman Jordan Management Co., which oversees about $575 million including shares of Mosaic.

The company has the second-highest cash-to-assets ratio among Russell 1000 companies with a greater than 15 percent share decline this year and no buybacks in the past five years, according to Bloomberg data.

“We have no new announcements, but we are always looking to create shareholder value,” Rob Litt said in a telephone interview today. Mosaic was created when Cargill combined its fertilizer business with IMC Global in 2004.

‘Unwilling to Sell’

Mosaic was rebuffed in an attempt to buy its shares from the Margaret A. Cargill trust, its only stock-purchase option under the spinoff by closely held Cargill. The trust, which holds 21.3 million shares in Mosaic, is “unwilling to sell additional shares at this time at current prices,” Mosaic Chief Financial Officer Lawrence Stranghoener said on an investor conference call today.

Mosaic fell $2.99, or 5.2 percent, to $54.20 at 4:15 p.m. in New York Stock Exchange composite trading. The company’s shares have fallen more than fertilizer industry rivals Potash Corp. of Saskatchewan Inc. and CF Industries Holdings Inc.

“I’d increase the dividend permanently so you can permanently attract buyers to your stock,” Michael Pento, the Holmdel, New Jersey-based president of Pento Portfolio Strategies, said in an interview. “If they’re not using that cash to grow the business, they’ve got to bring the dividend yield closer to 1 percent.”

‘Activist Shareholders’

Cargill announced Jan. 18 its shareholders and debt holders would get its 64 percent Mosaic stake in a spinoff. Hedge funds now own 19 percent of Mosaic shares, up from 13 percent at the end of May, according to Bloomberg data.

“Now that Cargill is no longer the major shareholder, you may have more activist shareholders who have a bigger voting interest, and perhaps Mosaic will have to listen to them a little more carefully,” said Chris Damas, a Barrie, Ontario- based analyst at BCMI Research.

Mosaic’s cash position expanded to $4.04 billion in the three months ended in August, up 71 percent from a year earlier, the company said yesterday. Mosaic’s sales increased 41 percent to $3.1 billion.

Not all signs point to Mosaic paying a special dividend or boosting its investor payout anytime soon.

‘Very Conservative Company’

The company is unlikely to hand more money to shareholders now because of regulatory hurdles at one of its phosphate mines in Florida and the likelihood it may need to acquire more reserves of phosphate rock outside the U.S., Mark Gulley, a New York-based fertilizer analyst at Ticonderoga Securities LLC, said in a Sept. 27 interview.

Legal challenges by environmentalists may force Mosaic to shut its mine at South Fort Meade, Florida, potentially increasing the company’s reliance on buying phosphate rock on the open market, Gulley said by telephone.

“Mosaic’s a very, very conservative company,” Gulley said. “I would expect they’d hold off on a decision on increased shareholder distributions until as late as possible.”

--With assistance from Shin Pei in New York. Editors: Tina Davis, Jasmina Kelemen

To contact the reporter on this story: Christopher Donville in Vancouver cjdonville@bloomberg.net.

To contact the editor responsible for this story: Simon Casey at scasey@bloomberg.net.


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