Israel Chemicals CEO Stefan Borgas announced he was stepping down as CEO of Israel Chemicals, just as the company’s board was due to discuss an internal investigation that concluded he had sexually harassed an employee.
The board was expected to adopt the report’s conclusions and call for his resignation, but Borgas acted first, saying on Thursday he was resigning immediately. On Sunday ICL named 66-year-old Asher Grinbaum – a 41-year veteran of the company who himself has retired five months ago – as interim CEO.
But the bigger issue was apparently a fundamental strategic dispute between the German-born Borgas, 52, and Idan Ofer, who controls 52% of ICL through his Israel Corporation. Borgas and Nir Gilad, ICL’s chairman until last March, had devised a plan to diversify ICL’s operations and make them less Israel-centric, a move Ofer and ICL’s new chairman, Johanan Locke, opposed.
The harassment case emerged three months ago when a employee in the public and investor relations department alleged she was being fired after a short stint at the job and that Borgas had acted inappropriately. Retired judge Oranit Agassi was named to investigate and concluded that Borgas had engaged in what she called a mild case of harassment.
Borgas said there was no connection between that issue and his resignation after four years at the post. “The allegations are entirely baseless, as made clear in an exhaustive investigation undertaken at the behest of the board. It was a case of a simple goodbye kiss, as happens many times every day. If that’s how it is interpreted as harassment, I’m sorry.”
ICL, in a statement, declined to discuss the matter in detail. “The company’s CEO presented his letter of resignation and explained he was doing it for personal reasons. The board accepted his resignation.”
Borgas’ tenure was a turbulent one for the company due to conditions in the world market for potash, the company’s flagship product, and a series of severe regulatory setbacks at home.
Capacity outstrips demand
The world’s potash makers have the capacity to produce as much as 30% more of the chemical, which is used in fertilizer, than the market needs. And ICL said in the second quarter it doesn’t see any balance returning to the market before the end of the decade.
In 2011 potash prices were around $414 per metric ton while in recent months, ICL has signed potash supply deals with China and Indian customers at $219 and $227 a ton, respectively.
That has translated into a sharp drop in ICL’s sales and profits over the last four years, even as Borgas instituted payroll cutbacks and other efficiency measures. In the first half of 2012, just before he became CEO, ICL had revenues of $3.5 billion and a net profit of $696 million; in the first half of this year, sales were $2.6 billion and net profit was $186 million.
ICL’s troubles, however, were made worse by a tougher regulatory environment coinciding with Borgas’ tenure. In 2014, the government’s Sheshinski committee’s proposal for a windfall-profits tax was adopted. A year later, arbitrators ruled that royalties paid to the government on mined bromine should be extended to some bromine products. In 2012, ICL agreed to pay 7 billion shekels to help Dead Sea hotels cope with the falling waterline caused by ICL’s mining activities.
Most critically, ICL is looking at tougher terms to get its Dead Sea mining rights renewed when they expire in 2030.
“ICL faces a tough road ahead although this is substantially discounted in the share price,” Citi analyst Andrew Benson wrote in a note to clients. “Fertilizer markets will remain intensely competitive over the medium term [and] ... higher royalty levels will materially reduce cash flow availability for shareholders from 2017 onwards.”
Meanwhile, ICL’s market value plunged 58% to $5.2 billion. ICL shares were down 1.4% on Sunday, the first day of trading after Borgas’ resignation, to 15.41 shekels ($4.10). ICL’s rivals haven’t done better, with Potash Corporation of Saskatchewan down 53%, Mosaic down 50% and K+S down 52% in the four years.
Borgas had hoped to cope with these issues with his “Next Step Forward” strategic initiative devised with Gilad in 2013. The aim was to diversify the company’s sources of potash and develop new mines overseas while focusing more on downstream products.
Some of these initiatives were running into problems. An Ethiopian potash project has stalled in a dispute with the local government, and in China a potassium joint venture has run up losses. But Ofer’s big concern was the estimated investment costs of as much as $3 billion that the plan envisioned and the big risk they entailed as the global potash industry contracts.
Ofer’s Israel Corporation needs ICL to pay dividends to cover some $1.7 billion in debt payments due over the next four years, the result of failed investments in the shipping company Zim, the Chinese automating joint venture Qoros and the defunct electric-car company Better Place.
At its peak, ICL was paying $1.1 billion in dividends annually, but in the first half of this year the board cut the payout to 50% of annual profits from 70%. Ofer is also concerned that the diversification plan will make it harder for ICL to convince the Israeli government to renew its Dead Sea license in 2030.
With reporting by Reuters.