Nutrien cashes in with lithium stake sale

US$4.1B deal with Chinese company

In a sign of how hot the lithium market is, Canadian fertilizer producer Nutrien Ltd. has sold a 24 per cent stake in Sociedad Quimica y Minera de Chile S.A. for US$4.07 billion, at a healthy premium.

The purchaser, China’s Tianqi Lithium Corp., agreed to pay US$65 per share for the Chilean producer, which represented a premium on the US$58 trading price, which surprised some analysts, as antitrust regulators in China and India had required Nutrien — the company formed by the merger of Potash Corp. of Saskatchewan and Agrium Inc. — to sell its stake in SQM as a condition of the deal.

“The price seemed good,” said John Chu, an analyst with Laurentian Bank Securities.

“Because Nutrien had given advanced notice that they had to sell it, and because it was such a large block of shares, it was thought that they would have to sell it a discount, and they actually sold it at a premium.”

Nutrien has said it could use proceeds from the deal as part of its US$1.5 billion share buyback, for part of its US$8 billion in debt reduction or for other purposes.

In total, Nutrien owns a 32 per cent stake in SQM. The current sale only relates to its approximately 62.5 million class A shares, representing 24 per cent of SQM.

It also owns approximately 20 million class B shares, representing an additional 8 per cent of the company, which it plans to sell by April 2019 to further satisfy antitrust regulators, according to Richard Downey, a spokesman for Nutrien.

SQM produces both lithium and potash, and regulators in India and China were concerned about Nutrien’s dominance in the potash market, he said.

Tianqi is a major lithium supplier in China, listed on the Shenzen Stock Exchange, and also has a presence in Australia.

Chile’s former government in March had tried to block the sale of SQM to any Chinese buyers, saying “it would distort the global lithium market and give Chinaanunfairadvantagein securing strategic resources,” according to Reuters.

SQM is the second-largest lithium producer in the world after U.s.-based Albemarle Corp.

Downey dismissed reports that Chilean regulators have raised antitrust concerns about a Chinese companybuyingitsstakein SQM. Although the sale of class A shares comes with three board seats in SQM, it is just a minority position in the company. He said the company is anticipating regulatory review only from Chinese and Indian regulators related to the potash market.

“It shouldn’t trigger any regulatory review that we’re aware of,” said Downey. “They’re buying some shares in a company, they’re not controlling anything.”

Nutrien chief executive Chuck Magro said at a BMO investor conference in New York that he was confident the deal would not trigger antitrust concerns and would be completed by the fourth quarter, Reuters reported.

As far as Nutrien’s decision to sell the class A and B shares separately, Downey saidhedidn’tknowtheexact reasons.

“They came in, they were interested in the A shares — I’m not going into anything more than that,” he said.

But Laurentian’s Chu said some investors believe splitting the class A and class B shares may have been a way to alleviate any possible antitrust concerns Chilean regulators have about a Chinese buyer, since it is a smaller stake.

“It’s quite possible that the deal involving only the Ashareswasanolivebranch (to the regulators),” he said.

Nutrien stock dipped just over half a per cent to $65.76 per share on the Toronto Stock Exchange on Thursday afternoon and closed at $66.01.

GETTY IMAGES Lithium being mined from salt flats. Chile’s former government in March had tried to block the sale of SQM to any Chinese buyers, saying “it would distort the global lithium market and give China an unfair advantage in securing strategic resources,”...