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January 21, 2011 6:00 AM

Dealmaker of the Week: Alan Kaden of Fried, Frank, Harris, Shriver & Jacobson

Posted by Tom Huddleston Jr.

Kaden
DEALMAKER

Alan Kaden, 54, partner and chairman of the Washington, D.C., tax department at Fried, Frank, Harris, Shriver & Jacobson.

THE DEAL

Cargill, Incorporated announced on January 18 that it would spin off its fertilizer and animal feed subsidiary, The Mosaic Company, in which it holds a 64 percent stake. The tax-free deal is valued at more than $24 billion, making it the largest transaction in Cargill's 146-year history.

THE CLIENT

Cargill--the Minnetonka, Minn.-based producer of agricultural, financial, and industrial products, that is currently one of the largest privately-owned companies in the country.

THE DETAILS

Cargill has been a private, family-owned company for more than a century. Maintaining that status is a priority for the client. When major shareholder Margaret Cargill died in 2006, she left her entire estate to multiple charitable trusts that--under state and federal law--are subject to specific diversification and distribution requirements. Those trusts and foundations now form a sizable chunk of Cargill's investor base. "The challenge," says Kaden, "was coming up with a transaction that was efficient from everybody's point-of-view--Cargill, and Mosaic, of course, and the charities--that would allow the charities to achieve their goal of meeting their diversification and distribution requirements, but also importantly allow Cargill to remain a private company."

The solution, he says, was for Cargill to spin off its stake in Mosaic in order to ensure that the charitable trusts' holdings are publicly held and diversified. Cargill's 286 million-share position in Mosaic will be distributed to company shareholders and debt holders in return for Cargill shares. Within 15 months of the deal's closing--expected occur sometime in the second quarter of 2011--Mosaic will conduct an offering for the resale of approximately 157 million Mosaic shares.

THE BIG PICTURE

Kaden's team structured the transaction to meet the trusts' requirements, keep Cargill private, and--pending Internal Revenue Service approval--keep the deal tax-free. The spin-off solves multiple issues for multiple parties, and is part of a recent trend that has seen an uptick in the number of companies turning to this type of transaction.

The New York Times's "Deal Professor," Steven Davidoff, wrote about the phenomenon on January 18, citing the Cargill transaction, among others. Davidoff questions the value of spin-offs in the piece, noting that market analysts believe overly diverse companies bring more value to the market by separating their businesses and allowing each to grow independently of the others.

For his part, Kaden says that more of his clients have inquired about the benefits of spin-offs. He expects that trend to continue. "These things go in waves and trying to separate and be better at what you do, and maybe do a little bit less but be better at what you're doing, is something that I think is now increasingly in focus in the world today," he says.

BACK STORY

This is one of the largest spin-offs that Kaden has worked on in nearly 25 years of having a hand in such transactions. He also has a long history with Cargill, having done tax work for the company over the past 15 years. That relationship began when the company's former tax director, Patrice Halbach, began a search for new outside counsel on the tax front and contacted Kaden as a potential candidate. "One thing leads to another, and all of a sudden it's 15 years later and you're still doing work for them."

Kaden also advised Cargill in 2004, when the company formed Mosaic by merging its fertilizer business with the publicly traded IMC Global Inc., affording him added insight when it came to putting this transaction together. "It's always easier when you have some familiarity with the company," he says.  

ON CLOSING

This deal "by virtue of it being a different type of fact-pattern, raised certain complications," Kaden says. One issue confronted by Kaden's team was having to deal with three parties--Cargill, Mosaic, and the charitable trusts. That, he says, meant that he and his colleagues needed to reconcile "three distinct sets of goals."

Kaden adds that the deal was actually more like a typical M&A deal than most spin-offs because usually the company being spun off is a wholly owned subsidiary. With Cargill owning just 64 percent of Mosaic, the deal was subject to the approval of a party aside from the parent company. "It became, in some respects, just like an M&A deal," he says, "because they were negotiating with a special committee of Mosaic, which basically had rights to approve the transaction, which normally you don't have in a spin-off situation."

In the end, though, Kaden and his team--which also was led by corporate partners Brian Mangino and Philip Richter--worked every angle to create a deal that appears to have satisfied the needs of everyone concerned.

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