This is part two of a two-part interview with Mosaic CFO Larry Stranghoener. Click here for part one.

TheStreet: There's been a lot of talk about how the tax ramifications of the divestment will effect any M&A the company does. And there have been reports that Mosaic had an interested buyer in the past. Did you have talks last year with Vale?
Stranghoener: I can't comment on that.

Well, how would you describe the tax implications?

This deal was structured by Cargill and Mosaic, and then the charitable trust, to accomplish a number of objectives, and that includes a tax-free distribution of shares to Cargill shareholders. With that comes a private letter ruling from the IRS. And per that tax ruling, there's a two-year period following the close, during which we face some restrictions on what we can do with our equity. Whether it's issuing it, or whether it's buying it. And that also then pertains to any M&A transaction, any takeover of Mosaic.

I think the talk you're hearing about is: does this deal make Mosaic more or less attractive as a takeover candidate? And I think that the answer to that is: over time, it probably makes it possible for us to attract a control premium if the right opportunity came along. And certainly if the right proposal came along, our board would look at it, and look at it seriously, and do what's in the best interest of shareholders. But during the next two years, there are restrictions on that possibility. So there's been a focus on, well, what if somebody came in and tried to make an offer, what would happen? That's become pure speculation. Again, suffice it to say, there are certain restrictions for the next two years, and beyond that there would be no restrictions.

Are there restrictions on buybacks, too?
Mosaic CFO Larry Stranghoener

There are restrictions, yes. We're limited to.... Well, unless you want the specifics, let's just say yes, there are restrictions on buybacks too.

So you can do buybacks, but there's a size limit?

We can do buybacks on a limited basis within this two year period.

I'm sure all of this is all in the SEC filings, no?

Yes, it is. You have to parse it pretty carefully, but it's in there.

But the tax-free nature of the deal restricts you from doing a major buyback, then, on the scale of a billion dollars, say?

Yes, it would restrict us from doing a major share buyback program in the next two years. I guess I'll leave it at that.

Hypothetically speaking, if there had been talks relatively recently with someone -- with a company like Vale -- they couldn't come in within that two year timeframe, because of the tax implications. Is that right?

Yeah, I think that's broadly correct. I think that the presumption is that if somebody with whom we, or Cargill, had had talks wanted to come in and do something during these next two years, the presumption would be that the split-off was done in contemplation of that transaction, and that would not be allowed.

There's an ongoing legal dispute between Mosaic and Potash Corp. What's going on there?

This relates to our Esterhazy potash mine in Saskatchewan, which is the world's largest. Under an agreement that goes back 25-plus years, we have been mining 1.3 million tons of potash per year, more or less, for Potash Corp., under a so called tolling agreement, where we produce it for the cost of production, plus a nominal margin -- very nominal. It's an agreement that has served both parties well over time. But we believe we are close to exhausting the reserves that we committed to them as part of this agreement. And so in our view, come June this year, our obligation to provide them tons comes to an end. At which time, those 1.3 million tons per year revert to Mosaic.

Obviously, given the price of potash these days, that 1.3 million tons is very valuable, and so it's not surprising there's a dispute over just when our obligation to provide them those tons ends. Our view is June, their view is ... sometime in the future. They've given various dates, and I'm not sure what their current point of view is. It's not clear yet how this will be resolved. It would be good if we could just sit down and reach a commercial resolution of this. But if that doesn't happen, a court date is set in Saskatchewan for September.

The company has undertaken some fairly large-scale capital-expenditure plans. What's the strategy here?
Certainly at the top of our list for cash allocation is growth -- specifically growth in our potash business. So we are investing five-plus billion dollars over the next ten years to expand our capacity in potash by 50%, or about five million tons. On top of which would come this 1.3 million tons from Esterhazy. We've got a number of major projects underway at all three of our mine sites there. And we think that these will be very handsomely rewarding investments.

The $5 billion you're spending over the next 10 years: How long before the projects begin to bear fruit?

We'll start to see some additional tons coming in 2012 already. There have been some dribbles already, but that will be the first major increment. This is not entirely accurate, but to put it very simply: think of these five million tons coming on stream roughly ratably from 2012 through 2018 or '19 or so.

he fundamentals in your industry are strong right now. But what do you worry about? What concerns might you have looking into the future beyond 2011?

As you say, the fundamentals are very strong right now, and it's a great time to be in this industry. The world population continues to grow. Diets are improving everywhere in the world, especially in high-growth countries such as China, India and Brazil. Grain and oilseed demand continues to grow. The demand for higher yields continues, and that suggests a very healthy demand for fertilizer. And so we like the supply demand outlook. That doesn't mean it's not going to be a cyclical business with some ups and downs along the way, but we think the long-term demand story is really a very, very good one.

I think the biggest worry on the horizon would be if something changes that fundamental demand outlook. If something happens in the world economy to cause demand for grains and oilseeds to somehow decline or grow at a lesser rate.

About the only thing that comes to mind on that front is if somehow the China story comes to a halt. China is a growth engine for so much of the world's economy when it comes right down to it. The same is true in the agricultural space. If something were to happen in China -- and it's hard to imagine what it is -- but if there's something out there that causes their growth rate to tumble, their economy to stumble, I think that's the greatest external threat out there.

This is part two of a two-part interview with Mosaic CFO Larry Stranghoener. Click here for part one.

-- By Scott Eden in New York

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