Buyouts can be one of the quickest ways for investors to score
a bigprofit .
Buyout companies are almost always purchased at a premium that
can give shareholders a nice pop. And with the S&P 500
sitting on recordcash and looking for ways to grow, the average
buyout premium is at an all-time high.
According to Dealogic, 2012's average buyout premium of 25% was
up from 23% in 2011 and the highest premium since 2001. That huge
average premium included the buyout of Baton Rouge, La.-based
energy construction company Shaw Group, which was bought for $46
a share, a 72% premium to its $27 share price. It also included
Bristol-Myers Squibb (
paying $26 a share to buy biotech company Inhibitex, a huge 163%
premium that ranked as the richest deal of theyear .
As you can see, with the S&P 500 hoarding record amounts of
cash and looking for ways to growsales and cut operational costs,
the buyout scene is hot. That means it's a great time for
investors to be looking at companies that could be potential
That's just one of the reasons I'mbullish on
, a global leader in concentrated potash and crop nutrients for
the agriculture industry. The company was spun off from
theprivately owned Cargill two years ago. But now, share
restrictions are set to expire, which makes Mosaic aprime
On May 26, charitable trusts associated with Cargill's founding
familywill be allowed to begin selling restrictedshares received
in the split. That, in addition to potential tax consequences
linked to a Mosaic buyout expiring this month, could pave the way
for a buyout of the $26 billion agriculture specialist.
Speculation about a Mosaic buyout comes on the heels of
continuedconsolidation in the nutrients and fertilizer industry.
In February, Norway's
Yara International (
, agreed to buy Iowa-based nitrogen player Terra Industries for a
$4 billion cash deal that was priced at a 23% premium. The
combination of the two has created the world's largest mineral
But a potential buyout isn't the only reason I like Mosaic. Even
if the company remains independent, Mosaic is a great way for
investors to cash in on the bullish trend in agriculture.
As a global leader in phosphate and crop nutrients, Mosaic is
using its reach and scale to tap into lucrativeemerging markets .
In March, Mosaic announced it will invest up to $1 billion in a
joint venture to produce phosphate in Saudi Arabia. The $7
billion project will be 60% owned by Saudi Arabian mining and
metals company Ma'aden, with Mosaic's 25% interest providing
access to fast-growing Asian markets.
Mosaic also has a powerful financial position that will enable it
to return value to shareholders when the Cargill share
restrictions are lifted. About 129 million shares (30%) of Mosaic
are held by Cargillinsiders and will automatically convert to
common shares in late November.
With more than $3 billion in cash on thebalance sheet and unused
borrowing capacities,analysts estimate that Mosaic has the
ability to buy between one-third and 100% of those shares. A
long-term buyback plan would have a serious effect onshares
outstanding and shareholder returns.
Mosaic also carries a soliddividend yield of 1.6% that is in line
with the 10-yearTreasury note . In a world of record-low interest
rates, that qualifies as a respectable stream ofincome .
But despite all the good news, Mosaic looksundervalued . Its
forward price-to-earnings (P/E ) ratio of 15 is a discount to its
10-year average of 16 and in line with the S&P 500, in spite
of analysts calling for outsize 21%earnings growth in 2014.
Risks to Consider:
Mosaic has underperformed its peers and themarket in the past
two years, despite a historically low valuation. And with Cargill
insiders sitting on biggains , the ending of the restriction
period could usher in awave of profit-taking.
Action to Take -->
Buyouts are a great way for investors to score quick gains.
That's the biggest reason I am bullish on Mosaic, where a share
restriction period set to end in late May could set the stage for
either the company to be bought for a 25% premium or big share
buybacks. But despite buyout speculation and bullish 21% growth
projection in 2014, Mosaic looks undervalued, trading at a
discount to its 10-year average and the S&P 500.