Vale M&A Rumor Befuddles

Analysts and bankers following Vale, the Brazilian miner, were mostly bewildered by unsourced local press reports suggesting it was preparing a $25bn bid for US fertilizer giant Mosaic. Vale is fresh off a series of conference calls and meetings with investors related to its $942m convertible, which was placed last week. Bankers involved and analysts who spoke to the company note Vale was clear in stating that it is not pursuing big ticket M&A, instead focusing on smaller acquisitions related to existing strategies. Earlier this week, Vale officials said the company evaluates all opportunities, but there was nothing major on the table to speak of. Mosaic specializes in potash and other minerals used in fertilizers, and is 46% owned by Cargill. While Vale has demonstrated an interest in fertilizer assets – it acquired Rio Tinto’s Brazilian potash assets in January for $850m – it is still largely viewed as a non-core business. “I think this is a new area for Vale. For them to pay $25bn for this seems to me to be too risky right now,” says Gilberto Cardoso, analyst at Banif-Ixe. He adds that the markets are too unstable to justify a major departure in strategy. “While possible, we do not believe Vale is likely to bid for Mosaic and thus, would view significant widening as an opportunity to increase exposure to Vale bonds,” says Barclays. Financing for such a big acquisition, at least for Vale, is likely to be available even in today’s tight bank market. With a roughly $12bn cash position, Vale is seen as having to raise $15bn-$20bn in the debt markets for a cash acquisition of Mosaic’s size. But a banker at one of the company’s main relationship banks insists that there has been no contact with Vale regarding new financing. Banif-Ixe’s Cardoso notes that with an extra $10bn, Vale could acquire Anglo American, a far more attractive asset in terms of scale and diversification metrics. Vale declines to comment on the Mosaic chatter.