Potash seeks backing for takeover
Netanyahu confirms talking to Canadian firm
Bill Doyle never tried to hide his intentions regarding Israel Chemicals Ltd.
Speaking to investors last week, the chief executive of Potash Corp. of Saskatchewan Inc. reiterated that his company wants to turn its minority positions in four foreign potash companies — including Israel Chemicals (ICL) — into majority ones.
“This doesn’t happen overnight. But we think (the investments) are a very, very valuable part of our company and it’s more than just a monetary thing,” he said.
What investors did not realize is how aggressively Potash Corp. is working toward that goal.
On Wednesday, Israeli Prime Minister Benjamin Netanyahu confirmed he held talks with Doyle about a possible sale of ICL to Potash Corp. The $13.5-billion purchase price of the remaining 84 per cent for ICL would dwarf all previous M&A transactions in Israel’s history.
The Saskatoon-based company also spoke with other Israeli government agencies, though it has not begun direct talks with ICL or with Israel Corp., its controlling shareholder.
“There is no assurance that a deal will be reached, or that parties will sign an agreement,” Potash Corp. said in a brief statement.
Last year, the company tried to boost its 13.84 per cent stake in ICL to 25 per cent, but gave up after failing to get approvals in a reasonable amount of time. Going above 50 per cent would be even tougher.
“You’re talking about assets that pull water out of the Dead Sea for industrial production, and water rights in the Middle East are very politically sensitive,” says Joel Jackson, an analyst at BMO Capital Markets.
As well, potash is one of the country’s few natural resources.
Potash Corp. would also have to get Israel Corp., a conglomerate that owns 52.3 per cent of ICL, to support any bid. Israel Corp. is controlled by the country’s powerful Ofer family, which has not provided any opinion on a takeover.
Israel Chemicals has a market value in excess of $15 billion, so acquiring most or all of the company’s shares would be a significant gamble for Potash Corp. However, the company will be in a strong position to do it very soon. Potash Corp.’s brownfield expansion projects in Saskatchewan are finishing up over the next couple of years, and that means its free cash flow is poised to rise dramatically.
“As I’ve said many times, those investments are the second-best potash assets in the world after our own,” Doyle said last week.
ICL cannot be sold without government approval, so it makes sense for Potash Corp. to try to win Netanyahu’s support. But the fact that Potash Corp. went to the government before ICL suggests it learned an important lesson from its takeover battle two years ago with BHP Billiton Ltd.: If you want to buy a prized foreign asset, tell the government well in advance. BHP did not, and Ottawa scuttled its $39-billion bid.