$4.1B ON THE LINE FOR NUTRIEN IN CHILE CASE
Pinochet relative’s legal challenge throws wrench in SQM stake sale
TORONTO Saskatchewan-based Nutrien Ltd. persuaded antitrust authorities earlier this month to sign off on its US$4.1-billion sale of its stake in a South American lithium producer.
But now the giant potash company is tussling with a powerful businessman: the former son-inlaw of the late Chilean dictator Augusto Pinochet.
Julio Ponce, a billionaire with a checkered past whose father-inlaw previously ruled Chile, has filed a lawsuit seeking more time to review Nutrien’s US$4.1-billion sale in Sociedad Química y Minerva de Chile to a Chinese buyer.
If the lawsuit delays the sale long enough, some analysts believe Nutrien may be forced to ditch its Chinese buyer and sell its stake in SQM on the open market — for as much as US$1 billion less than the original price.
The situation could change how foreign companies view Chile as a place to conduct business, and shows that while globalization has opened new markets for Canadian companies, it has also created new risks. “We do believe that foreign companies will be watching the outcome of this case with interest,” said Will Tigley, a spokesman for Nutrien.
Nutrien was formed earlier this year when two of Canada’s biggest potash companies, Agrium Inc. and Potash Corp. of Saskatchewan, combined in a US$25-billion deal. The merger created the largest potash and nitrogen fertilizer company in the world and immediately drew attention from antitrust regulators around the globe concerned about its size and potential to control the marketplace.
As a condition of the deal, antitrust regulators required Nutrien to sell its stakes in a number of companies, including its 32-per-cent stake in SQM, a large potash producer and the world’s largest lithium producer.
Some regulators, including those in India — an important market for Nutrien, analysts say — also imposed a deadline of May 2019 to finish all such sales necessary for its merger, according to the company.
Nutrien is hitting numerous obstacles as the clock ticks down.
It has sold about eight per cent of its shares in SQM for US$1 billion on the open market, but still holds a 24-per-cent stake in the company.
Last May, China’s Tianqi Lithium Corp. agreed to buy those shares for US$4.07 billion. Since then, New York Stock Exchangelisted SQM’s shares have declined 28.5 per cent from around US$58 to US$41.43 as of Friday.
John Chu, an analyst with Laurentian Bank Securities Inc., said a new purchase offer would be “not nearly as lucrative.”
“Obviously, they may not get the same price Tianqi offered,” he said, noting that while Nutrien could find other buyers, it may also be forced to sell the shares in the open market.
Chu and other analysts have estimated the sale price could be US$1 billion less for Nutrien.
Although Chile’s antitrust regulators and court approved the sale to Tianqi this summer, Chile’s Constitutional Court earlier this month blocked the sale while it considers a legal challenge to their decision filed by Ponce, through his business, the Pampa Group.
Ponce has held stakes in SQM since it was privatized in the 1980s under his deceased former fatherin-law Pinochet. He still controls around 30 per cent of SQM, and was previously the chairman of the company but stepped down in 2015 after being fined for market manipulation by Chilean regulators.
He did not respond to requests for comment placed with Pampa Group.
Ben Isaacson, a Scotiabank analyst who covers the company, called Ponce’s lawsuit a “Hail Mary” in a note last week. Ponce is alleging the deal was done “practically in secret,” Isaacson wrote.
Tianqi has a joint venture in Australia with SQM’s top competitor Albemarle Corp., and Ponce’s lawsuit said Tianqi would gain Nutrien’s board seats on SQM and thus have access to SQM’s sensitive information and operating secrets, which could be passed to Albemarle.
Isaacson questioned whether Ponce’s suit is “blatant hypocrisy,” noting in 2014 Ponce “was shopping a 23 per cent stake in SQM to ... (drum roll) ... Tianqi.”
“We presume he wasn’t so concerned about with SQM’s sensitive information falling into Tianqi’s hands back then,” Isaacson wrote.
In any case, the deal fell through, and now Tianqi is seeking to buy a 24-per-cent stake from Nutrien for $4.1 billion, pending review by Chile’s Constitutional Court.
Tianqi, the Chinese buyer, said through a U.S.-based spokesperson that Chilean antitrust regulators already took five months to review the sale. On Oct. 4, Chile’s antitrust court approved the decision.
“Tianqi made the decision to invest in SQM based on our belief in the independence of Chilean legal system and the openness of Chile’s economy to foreign investment, including from China,” the spokesperson said.
On Oct. 11, the Constitutional Court agreed to hear Ponce’s challenge to the antitrust court’s decision.
It is scheduled to decide on Monday whether the lawsuit is admissible. It can decline to take the case or can opt for further hearings, but its decisions cannot be appealed to a higher court, according to analysts who have studied the matter.
But if the lawsuit drags out, pressure mounts on Nutrien to close the sale before the May 2019 deadline that Indian antitrust regulators set.
“We expect to win the court case on Monday and to close by the end of the year,” according to Nutrien spokesman Tigley.
Indeed, Scotiabank’s Isaacson increased the deal risk from zero to two per cent in a show of optimism.
Laurentian Bank’s Chu said Nutrien would find a way to sell the rest of its SQM stake before next May. Still, he added that missing the deadline would have an unclear impact on Nutrien, which already operates as a merged company.
“I never really thought about the consequences of that,” said Chu, “and I don’t think Nutrien wants to find out.”