Update Bunge (BG)

01/15/2010 1:14 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

Brazilian iron ore giant Vale (VALE) said on January 15 that it’s in talks with Bunge (BG) to buy that company’s fertilizer assets in Brazil.

The deal, for as much as $3.8 billion, would relieve Bunge of a unit that showed a loss of $127 million in the third quarter, and give the company cash to pay down debt that stood at $4.1 billion at the end of September 2009.

For Vale, the deal would give the company, which already produces potash fertilizer at Taquari-Vassouras in northeast Brazil and is developing new projects in Brazil, Argentina, Canada, and Peru, additional scale in the short-term and in the longer-run a potential path to dominating Brazil’s fertilizer market.

The deal would include, Vale said in a regulatory filing, Bunge’s 42.3% stake in Fertilizantes Fosfatados or Fosfertil, Brazil’s largest supplier of raw materials for fertilizers.

The deal would also take some of the political heat off Vale to invest more in Brazil. On October 20 Vale said it would invest almost two-thirds of its 2010 capital budget in Brazil after Brazilian President Luiz Inacio Lula da Silva urged the company to invest more in the country.

“Urged” may be too weak a term. Brazilian Agriculture Minister Reinhold Stephanes has noted that Vale might have to give up rights to two fertilizer deposits if it didn’t start exploration soon.

In 2008 Brazil imported 70% of its fertilizers. The government has said that the country wants to be self-sufficient in fertilizer by the end of the decade.
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