Potash Corp. in Talks to Merge With Israel Chemicals

Potash Corp. of Saskatchewan Inc., the world’s largest fertilizer producer, is in talks with the Israeli government about taking control of Israel Chemicals Ltd. (ICL) in a deal that may be worth more than $13.5 billion.

Executives of the Saskatoon, Saskatchewan-based company have held talks with Prime Minister Benjamin Netanyahu and met with government agencies about a “possible merger,” Israel Corp. said today in a statement to the Tel-Aviv Stock Exchange. Israel Corp., controlled by the country’s billionaire Ofer family, is Israel Chemicals’ biggest shareholder.

Potash Corp. Chief Executive Officer Bill Doyle, who defeated a hostile $40 billion BHP Billiton Ltd. (BHP) bid in 2010, will have to convince the Israeli government and the Ofers to sell in order to win control of one of the few natural resources held by the Middle Eastern nation. A takeover of Israel Chemicals would be at least three times bigger than the largest deal completed in the country.

“In the short term this is a positive for ICL and fantastic for Israel Corp., (ILCO) but I think it will be very hard to get an approval for the deal,” Gilad Alper, a senior analyst at Excellence Nessuah Investment House Ltd. in Ramat Gan, Israel, said today by e-mail. “As Israel faces early elections we think it is unlikely the prime minister will approve this deal now and risk being criticized for selling natural resources and risking the delicate ecology of the Dead Sea.”

Israel ‘Looking’

Netanyahu has met with Potash Corp.’s CEO and talks with the company are “ongoing,” the prime minister said today at a press conference in Paris. Israel is “looking” at a sale of Israel Chemicals to Potash Corp., he said.

The Israeli government holds a so-called golden share in Israel Chemicals, which was created when it sold a 25 percent share in the company in 1995. The share allows the government to ensure against a takeover of the company by parties hostile to Israel and to protect the country’s natural resources.

The Potash Corp. talks come as declining Dead Sea water levels prompt criticism from campaigners about fertilizer makers in Israel and Jordan siphoning water for their operations. Netanyahu called for early elections three weeks ago amid a budget deadlock.

Potash Corp. is seeking permission to buy 100 percent of Israel Chemicals, which has a market value of 61 billion shekels ($15.7 billion), the Calcalist newspaper reported earlier.

Potash Comment

Potash Corp. “acknowledges” the statement by Israel Corp. and doesn’t intend to comment further on the matter, the company said today in a statement.

Potash Corp. rose 0.5 percent to C$40.15 in Toronto. The shares (POT) have fallen 4.7 percent this year.

A “key rationale” for Potash to control a bigger stake in Israel Chemicals would be to eventually secure marketing control of one of the two big producers not part of the two main potash marketing organizations, Joel Jackson, a Toronto-based analyst at BMO Capital Markets, said in a note today. Jackson said he would expect an offer for full control would involve a “significant” premium of possibly 30 percent or more.

Potash Corp., Plymouth, Minnesota-based Mosaic Co. (MOS) and Calgary-based Agrium Inc. sell production through marketing group Canpotex Ltd. OAO Uralkali and Belaruskali, two potash producers in the former Soviet Union, also have a joint export trader, Belarusian Potash Co. K+S AG, based in Kassel, Germany, is the other large potash producer not included in the two groups, Jackson said.

Buffett Acquisition

Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) acquired Iscar Metalworking Cos. for $4 billion in 2006 in Israel’s largest deal. The Ofers’ businesses include investments in shipping, banking, chemicals, oil refining and construction. Their personal fortune was estimated at $10.3 billion, according to Forbes magazine, making them Israel’s richest family.

Israel Chemicals climbed 5.2 percent to 48.6 shekels in Tel Aviv. Israel Corp. advanced 5.6 percent to 2,640 shekels. ICL’s market value today was 61.8 billion shekels ($15.9 billion).

Potash Corp., which owns 13.8 percent of Israel Chemicals, dropped a bid in June to increase its holding in Israel Chemicals to as much as 25 percent from 13.9 percent, saying the process was “taking a long time.” Tel Aviv-based Israel Corp. owns 52.3 percent of Israel Chemicals, which extracts minerals from the Dead Sea to make fertilizer and potash.

China, India

“No deal has been formulated yet, and Potash has not yet approached the company or ICL,” Israel Corp. said in the statement. “There is no certainty negotiations will take place.”

Potash Corp. is battling falling sales for the crop nutrient and last week cut its earnings forecast for 2012 on slower than expected orders from buyers in China and India. Third-quarter net income dropped 22 percent to $645 million, it said Oct. 25.

Sales of potash, which helps strengthen plant roots and improve resistance to drought, generated 64 percent of the company’s gross profit last year, according to data compiled by Bloomberg.

“I’m not aware of anything of this magnitude happening in Israel,” Excellence Nessuah Investment House’s Alper said. “We could be talking about a $14 billion deal before even a possible premium that Potash could be paying on the company.”

In October 2010, China National Chemical Corp. acquired 53 percent of Makhteshim-Agan Industries Ltd. for $2.24 billion in cash, making it the second-largest deal completed in Israel, according to Bloomberg data.

To contact the reporters on this story: Shoshanna Solomon in Tel Aviv at ssolomon22@bloomberg.net; Jesse Riseborough in London at jriseborough@bloomberg.net

To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net; Simon Casey at scasey4@bloomberg.net

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