Mosaic Buyback: No Good Deed Goes Unpunished

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Mosaic Co. (NYSE: MOS) should probably be getting rewarded on news that it has reached an agreement to repurchase the remaining common shares held by the Margaret A. Cargill Foundation and the Anne Ray Charitable Trust. Monday’s buyback from what is called the MAC Trusts has Mosaic purchasing all of their 43.3 million restricted shares over the next eight months.

Mosaic will initially purchase 21.7 million of the MAC Trusts’ Class A shares on January 8, 2014. This price will be based on the volume weighted average closing price of Mosaic’s common stock over the preceding 20-day trading period. In short, it is close to $1 billion initially, based on the current share price.

The remaining 21.6 million shares will be purchased by Mosaic starting in February 2014 in seven equal monthly installments. Each will be at a 20-day trading period based on the same volume weighted average pricing formula.

As far as why this is good, Mosaic is being released by the MAC Trusts from its contractual obligation to register any remaining common shares in a secondary offering. These registrations and offerings have been a significant overhang on shares at a time when the fundamentals in potash and fertilizer have changed. It also effectively puts the Cargill split-off transaction behind the company.

Where the news gets interesting is that Mosaic said it is continuing to evaluate other shareholder return options as the new year approaches. Mosaic has close to $4 billion in cash, cash equivalents and long-term securities on its books, and its dividend yield of 2.1% remains a fairly low portion of normalized earnings.

Mosaic further said that it intends to maintain its investment-grade ratings while still maintaining the financial flexibility to take advantage of appropriate growth opportunities with appropriate capital allocation. Mosaic shares were down just over 1% at $46.30 in late Monday morning trading, against a 52-week range of $39.75 to $64.65.

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