Canada's PotashCorp Drops Takeover Bid for Israel Chemicals

Canadian company issues a statement saying the deal would have benefited both countries, but that there must be 'receptivity' in Israel to foreign investment.

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Potash Corporation of Saskatchewan, the world’s largest fertilizer producer, said yesterday it abandoned its takeover bid for Israel Chemicals, saying it would not pursue the acquisition due to growing opposition from Israeli politicians and company employees.

“While we continue to believe that such a transaction would be of tremendous benefit to stakeholders of both companies and the State of Israel, there must be receptivity to foreign investment and certainty in the rules that govern such investment,” the company said in its first-quarter earnings statement.

Nevertheless, the company hinted that it would revisit the bid sometime in the future. “We have therefore concluded that now is not the time to pursue this opportunity and will focus our energies on other options to maximize shareholder value,” the company said.

PotashCorp, which owns just under 14% of ICL, renewed its efforts to gain full control of the world’s sixth-largest potash producer at the end of last year, with CEO Bill Doyle meeting Prime Minister Benjamin Netanyahu last fall to lobby for the deal.

With ICL trading at a market capitalization of more than NIS 55 billion, acquiring the 86% of the company PotashCorp does not own would have cost it in excess of $13 billion in stock. That would have made it the largest cross-border merger and acquisitions deal ever for Israel.

But the bid met staunch opposition from labor unions, which feared job cuts, and many politicians, including Finance Minister Yair Lapid, who two weeks ago vowed to block the takeover bid.

“The State of Israel’s natural resources are a public asset, and the Israeli public should be the first to benefit from them,” Lapid declared, saying he would to set up a public committee to reexamine government policy regarding natural resources managed by private companies.

PotashCorp’s decision may have reflected uncertainty in world commodity markets that has caused many mining companies to rein in capital spending, said Ernie Lalonde, senior vice-president of mining at DBRS Limited, which rates the debt of companies.

“The current political environment is anti-corporate and protectionist in terms of natural resources, so it was possibly the worst time for them to try and do such a deal,” added Richard Gussow, an analyst at Israel’s DS Brokerage.

For its part, ICL said that while it had welcomed the prospective merger, its operations in Israel and Europe made it globally competitive and provided a platform for future growth.

“An international partnership with major players like Canada’s PotashCorp are an appropriate alternative, but certainly not the only one for the growth of ICL,” it said in a statement yesterday. “ICL is a strong company with a promising future in all of its fields of operation, including fertilizers. In the potash field, ICL is a medium-sized company with low production costs and is in no manner dependent on any other party.”

Nevertheless, shares of ICL, which had tumbled after Lapid expressed opposition to the sale earlier in the month, closed down 4.5% yesterday on the Tel Aviv Stock Exchange. Some NIS 179 million shares changed hands. Shares of the Israel Corporation, the holding company that controls 52.3% of ICL and stood to be the biggest beneficiary of the sale, closed 3.8% lower on the day.

The proposed deal would have had ICL merging into PotashCorp via a share swap that would have left ICL shareholders with about a third of the merged company.

Approval of Israel’s Government Corporations Authority would have been necessary to raise its stake in ICL beyond the 14% threshold. The government also owns a “golden share,” which confers veto rights over anyone accumulating more than a 14% stake.

After backing off its pursuit of ICL, the Canadian company will have to find other ways to bolster its shipments to Asia. Potash Corp will soon face stepped-up competition from Canadian mines under construction by K‏+S AG and BHP Billiton Ltd.

Reuters contributed to this report.

A PotashCorp railcar is seen near potash tailings at the company's Lanigan mine in Lanigan, Sasketchewan, Canada.Credit: Bloomberg

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