Vale SA is considering spinning off its fertilizer assets into a joint venture controlled by Apollo Global Management LLC if they succeed in a joint bid for Anglo American Plc‘s fertilizer operations in Brazil, three sources with direct knowledge of the plan told Reuters on Wednesday.
The creation of the joint venture, which would group Vale’s fertilizers and phosphate business with Anglo-American’s, has been under discussion for weeks, said the first source, who requested anonymity since talks are ongoing.
Clinching the Anglo American deal is a precondition to form the joint venture, the sources said. Apollo, run by financier Leon Black, and Vale both declined to comment.
Reuters reported on April 13 that New York-based Apollo and Rio de Janeiro-based Vale wanted to jointly bid for Anglo American’s (AAL.L) niobium and phosphate business in Brazil – two minerals used in making fertilizers.
The move underpins Apollo’s strategy to snap up cheap mining assets and team up with a mining firm able to extract the necessary cost savings to make the purchase pay off.
Under the preliminary terms of the plan, Vale would spin off its assets and transfer them to a new company that Apollo would control, two sources said.
Vale’s fertilizer unit is valued at around $1.2 billion, the first source added. The world’s largest iron ore producer wants to receive cash in an eventual tie-up as it seeks to reduce its debt, but it is unclear at this stage how much it might receive, the first source said.
While the structure of the deal remains under discussion, Apollo would own a 60 percent stake in the venture, and Vale the remainder, the sources said.
Apollo and Vale may offer about $500 million to Anglo American for the assets, the first source said. Anglo American did not have an immediate comment.
The buyout firm, which manages about $170 billion in assets, is seeking $2.2 billion to finance the deals, mostly in bank loans, but has yet to secure the money, the first source added.
Vale Chief Executive Officer Murilo Ferreira is seeking to reduce debt by $10 billion by 2017 through a combination of asset sales and partial divestitures.
The first step in that direction was Vale’s exit from a beleaguered steel joint-venture CSA Siderurgica do Atlántico SA to former partner ThyssenKrupp AG for $1 and the assumption of some debts.
Under terms of that deal, which Reuters reported on April 1, Vale could receive cash if CSA is sold.
Vale had tried to dispose of the fertilizer business before.
Credit Suisse Group AG won a one-year mandate to sell 30 percent of the unit that expired recently, separate sources with knowledge of the situation said.
Mosaic Co. placed an offer to buy 100 percent of Vale’s fertilizer unit, which the Brazilian company refused because it wants to have exposure to the industry and cash out only partially, said the first source.
Both Mosaic and Credit Suisse declined to comment.