“An Elderly San Diego Woman’s Dying Wish Could Give You a Lump Payment of $4,000 by the End of April”

By Travis Johnson, Stock Gumshoe, March 29, 2011

I left out the little asterisk in that headline — we’re also told that “your payment could be higher or lower than $4,000.”

Which means, of course, that it could be zero … but still, let’s look into this odd headline and the teaser that follows it, and see if we can’t sniff out just what they’re talking about, shall we?

The “they” in this case is Zachary Scheidt, who has darkened the virtual door here at Gumshoe Manor on many an occasion — the most recent teaser of his that really caught the interwebs on fire was for the “silver shots,” a teaser for call options on the SLV ETF that was trotted out a couple times when silver was rising.

That silver teaser was for Scheidt’s options newsletter, which they call Velocity Trader (not as sexy as the old name, Death Cross Trader — but perhaps less intimidating). Today’s teaser, though, is for a different letter called New Growth Investor that’s more focused on growth stocks and, I assume, longer term investments … we’ve covered some picks from this letter in the past, too, including one for the “Back Mountain Covenant” that was about shale gas, and another one that pitched a handful of gold miners and threatened that President Obama wants to confiscate your gold. So he gets around, topic-wise, but most of his teases I’ve seen of late have been in the natural resources arena.

And today is no different — today’s tease starts out by telling us about this elderly San Diego woman and how her dying wish will make you rich, but after that it gets into a pick that’s somehow connected to her… let me just give you a taste of the tease here:

“There’s a unique situation unfolding in the next two months that could make you $4,000 with very little effort.

“It’s all thanks to the kindness and amazing philanthropy of a very wealthy elderly woman from San Diego. She passed away in 2006 at the age of 85, and only then was the full extent of her charity known.

“But that was how ‘Mary Catherine’ wanted it. (For privacy reasons, I can’t use her real name in this letter.) She didn’t want any thanks.”

Not to put too fine a point on it, but “Mary Catherine” stopped being private when she passed away — and the quotes about how she wished to be anonymous in her philanthropy are from newspaper articles, so obviously Scheidt doesn’t need to keep her name “hush hush” to save her family the attention … but, as you’ll see in a minute, he does need to avoid giving away her name if he doesn’t want to spill the beans about his top-secret investment idea to the great unwashed (that would be non-subscribers like you and me).

And her dying wish to give away her fortune is apparently going to make us rich:

“… when she died, she still had a huge chunk of money in her trust… a stake valued at over $9.4 billion.

“It was her dying wish to see all of that money given away as well.

“By the end of April, those last hopes will become a reality. And you could claim a small personal stake in this massive fortune.

“It doesn’t matter if you’re rich or poor, old or young, Republican, Democrat or other…

“Because of Mary Catherine’s generous nature, you could be on the receiving end of a lump payment, courtesy of her estate.”

And, you guessed it, there’s a stock and a company connected to this story …

“… almost every cent of Mary Catherine’s $9.4 billion are in the shares of one publicly traded company.

“Not just any company either; one of the largest and most profitable mining companies in the world.

“The essential resource they mine for is coveted by China and other emerging economies, most of which can only mine small amounts of this resource in their own countries.

“That’s why shares of this company have shot up 121% in the past seven months.”

And then we start to get the idea of how we’ll get rich … and a few clues about this company …

“Fiscal 2011 second-quarter earnings were nearly 10 times larger than the same period last year, going from $107.8 million to $1 billion.

“I expect this company to continue growing at a rapid rate over the next few years. It’s already the second-largest producer in the world of this essential resource.

“However, Mary Catherine’s estate has created a unique situation with this company, a chance to make 40% off its shares — in a single day.”

The basic story is that “Mary Catherine” wants her money given away, and in order to do that they have to liquidate some of the estate, which means they need to “split off” this company.

And Scheidt tells us that there are rumors about a takeover happening soon — and that there is motivation to get it done before the “split off” to simplify things. He includes a quote from the Financial Times, too:

“According to the Financial Times, ‘an offer that is at a 40% premium to current share price is likely high enough for the special committee to seriously entertain a bid.’

“That means if a bid is accepted by the end of April, and you own shares in the company, you could make 40% in one day!”

So that’s one possibility — and Scheidt says that he thinks the company is in such a great business that it could get you gains of 150-200% even if it isn’t bought out by someone else.

Ready for some answers?

Well, “Mary Catherine” is really Margaret Anne Cargill. So if you’ve been following the news you probably know what this means about our stock … it must be Mosaic (MOS).

Just to finish our dot-to-dot illustration, I’ll fill in for those who haven’t followed the story: Cargill is one of the world’s preeminent large businesses, with roots as a grain handler in the midwest and much of their work now in food and agriculture-related sectors (though not all — they got into oil, steel, financial services and a bunch of other stuff, too … they even run the world’s deepest salt mine near where I grew up in Central NY). And Cargill is one of the largest private companies in the world, with revenue over $100 billion last year — they’d probably be in the Dow if they were public, and they’re near the top of the list of the Fortune 500.

Right, that’s private, meaning you can’t buy shares of their stock. So what the heck is Zachary talking about?

Well, one of Cargill’s major assets, and a big driver of their profits in recent years, is their 64% ownership of Mosaic, the second-largest publicly-traded potash producer in Canada (after Potash Corp). And due in part to Margaret Cargill’s will that stipulates a philanthropic trust that has to diversify its holdings over time (I don’t know if those are the right technical terms, but you get the idea), Cargill has to be a bit more liquid than it has been … and the way to get a bit more liquid without going public, which Cargill apparently doesn’t wish to do (it’s still owned mostly by the founding families, with some employee stock ownership added on in recent decades), is by selling assets.

So that’s basically what they’re trying to do — sell Mosaic. That’s not technically what they’re doing, they aim to spin off their Mosaic shares to Cargill shareholders … but since the only real reason for doing that is so that Cargill shareholders like Margaret Cargill’s trust can sell some MOS stock if they want (OK, and it will apparently help Cargill improve their balance sheet and credit rating), it’s easiest if we just think of it as a sale. What would essentially be done is that existing Cargill shareholders and lenders would have the option of converting some of their tightly-controlled Cargill shares into Mosaic shares, which are publicly traded and could be sold.

Mosaic is obviously a pretty hot property — as we saw with BHP Billiton’s squashed attempt to acquire Potash Corp, there is significant demand for fertilizer assets like these huge Potash mines in Canada, and Mosaic is the second biggest owner. Now, whether or not Mosaic could get regulatory approval to be taken over by another company is an open question — I have no idea, but I guess it’s possible, since they’re smaller and already controlled by a foreign corporation, and would still be a minority shareholder in the potash export board (I think part of the problem with letting Potash Corp get taken over was that a majority of that board would have been controlled by “outsiders”).

So what Scheidt is basically teasing is that the Cargill folks might take kindly to a takeover offer for Mosaic that simplified their process of splitting off the company — and that if such a takeover offer was to come it would likely have to be at a steep premium to get Cargill’s attention and to negate the otherwise tax-free nature (they hope) of the split-off transaction, and it would have to be before the split-off takes place. Oh, and we’re assuming that the offer would be for the whole company, so minority shareholders (like folks who own MOS stock now) would get bought out at this stiff premium as well.

The basics were announced in January, and detailed pretty well in this NY Times article. And the Financial Times article from February 1 that Scheidt quotes in the teaser is here — and yes, they did quote one person who speculated that a 40% takeover premium might get the deal done, but they also quoted another expert who was skeptical that anyone would step up to buy Cargill’s stake before the split-off starts rolling sometime in April.

So yes, the “elderly San Diego woman” making you $4,000 is predicated on you buying $10,000 worth of Mosaic shares, then seeing a quick buyout at a 40% premium by some big mining or fertilizer company in the next few weeks.

Will that happen? Beats me, but certainly the market knows it’s out there as a possibility — and in fact, we’ve seen Mosaic touted in recent months because the company would generally become more attractive after the spin-off, since it would no longer be controlled by a non-public shareholder and would probably be added to the S&P 500.

There are also some folks who aren’t so crazy about the deal — it will take years to complete, with a lot of those MOS shares locked up for at least two years (including those of Margaret Cargill’s trust) and continuing board control of MOS by Cargill shareholders … which has inspired at least one lawsuit from a pension fund crying foul about treatment of MOS minority shareholders. And of course, Mosaic could have been sold by Cargill at any time in the last several years, there’s nothing magical about this other than that it comes at a time when MOS shares are doing well and when Cargill could use the financial flexibility.

And yes, everyone knows that a takeover is possible, and that it’s possible that MOS shares will move significantly following the spinoff. Options trading has been pretty heavy in Mosaic shares for the next few months and, as I said, I’ve seen MOS teased before for this very reason, and it’s also been all over the financial press … so you can certainly feel free to bet on Mosaic shares moving as a result of the Cargill deal, but you will not be alone and this ain’t a secret deal.

I do like Mosaic, just as I like other fertilizer companies — it’s hard to argue against fertilizer suppliers when grain prices are so high and demand for food so strong. I’d urge you to think about the stock as a possible long-term investment if you think of it at all, and buy if you’d be happy owning it but don’t necessarily count on that spike next month from a bid from BHP Billiton or Rio Tinto (or whoever else you can think of who has that kind of money). And as we noted about a month ago, the other fertilizer stocks certainly have their fans, too — Robert Hsu called Agrium, a more diversified name in the space, his #1 Stock of 2011.

Mosaic trades at almost exactly the same valuation as Potash Corp (forward PE of 15 … though MOS has a cleaner balance sheet, so if you look at enterprise value/EBITDA they’re a bit cheaper than POT), so you can argue perhaps that the stock is not getting a “potential takeover” premium right now, or any boost from it’s upcoming partial independence, though do note that it’s quite possible that you’ll end up with shares of a company that, while more widely held, is still effectively controlled by Cargill for a few years. And you may have to count on a growing business to boost your returns, not necessarily a buyout at a sharp premium.

So whaddya think? Think it’s likely that you’ll be getting your $4,000 from “Mary Catherine,” or are you less than enthused? Let us know with a comment below. It’s OK, don’t be shy.

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9 Comments on "“An Elderly San Diego Woman’s Dying Wish Could Give You a Lump Payment of $4,000 by the End of April”"

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Sharon
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Sharon
March 29, 2011 1:13 pm

Amazing analysis! Convoluted on the part of the Cargill shareholders as well. I'm going tp pass on it though. Metobolix broke through resistance. I'm checking that teaser out again.

StB
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StB
March 29, 2011 1:30 pm

Wouldn't this have a dilutive effect on the stock? To free up her investment, the Cargill stock would need to be converted to Mosaic and then sold, if even to another company. End result is there is more MOS stock outstanding (in the public float) and less value to current shareholders. Plus, knowing stock needs to be sold who is going to pay much of a premium?

ken
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ken
March 29, 2011 1:47 pm

bought mtobolix at 9.03 a share sold to day at 9.97 nice deal but it went up and down many times was told many years ago take any profit you can stocks are lke buses there is another one right around the corner

bill
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bill
March 29, 2011 2:40 pm

One worth looking at is CHS Ind.

bill
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bill
March 29, 2011 2:41 pm

CHS Inc. ……………sorry

Brian
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Brian
March 29, 2011 11:35 pm

I bought POT at $55 bucks 4 splits ago, they are the King. Mos because of all the swirling controversy is a spec play at best, a gamble, POT is not a gamble.

David Hibbs
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David Hibbs
March 31, 2011 1:55 pm

If Mary Catherine is giving away Caegill funds I'll volunteer to take it. Since Cargill has never given me or it's employees anything I'll believe it when I see it! If some large exponential number of us were to actually receive these funds Cargill would never miss them.

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March 29, 2011 1:39 pm
It shouldn't have a dilutive effect on the stock, since as I understand it those shares currently exist as ownership by Cargill. It would increase the float, but the float isn't the company — all shares outstanding have a call on MOS earnings, not just the publicly traded shares. "Outstanding" and "floating" are different. That's not to say it might not hurt the shares, I don't know how it will turn out, just that in general a larger float and more active trading should get you a fairer price … in theory. The shares may well see a headwind from… Read more »
Sharon
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Sharon
March 30, 2011 3:01 pm

isn't that the the truth! good for you too!

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