Potash-Israel Chemicals Merger Faces Government Obstacles

Potash Corp. of Saskatchewan Inc. is in discussions to acquire Israel Chemicals Ltd. (ICL) less than five months after it dropped a bid to raise its stake. Talks may be even more difficult this time as the country heads to January elections amid security tensions.

“The chances of this deal going through, given that Potash has tried to boost its stake in ICL in the past and failed, are low,” said Richard Gussow, a senior analyst at DS Securities & Investments Ltd. in Tel Aviv. “The thought that you would have a foreign entity owning a natural resource near Israel’s border with Jordan doesn’t sound good, politically speaking.”

Potash Corp. may spend more than $13.6 billion if it buys the 86 percent of Israel Chemicals it doesn’t already own, based on yesterday’s share price. Such a transaction would be at least three times bigger than the largest acquisition of an Israeli company. To get it done, Potash Corp. Chief Executive Officer Bill Doyle will have to win support from the government and the billionaire Ofer family’s Israel Corp., which controls ICL.

The Israeli company is the country’s second-largest publicly traded business by market capitalization and harvests potash from the Dead Sea. Any deal to sell off a key natural resource before the elections would be seen as politically risky for Prime Minister Benjamin Netanyahu, Joseph Wolf, an analyst at Barclays Plc, said by phone from Tel Aviv.

“The last thing the government wants is a group of protesters holding signs against the sale,” Wolf said.

Political Experience

Potash Corp. rose 0.4 percent to C$40.31 at 11:36 a.m. in Toronto. Israel Chemicals declined 0.2 percent to 48.5 shekels at the close in Tel Aviv. Israel Corp. gained 0.9 percent.

The Israeli government holds a so-called golden share in Israel Chemicals, allowing it to prevent a takeover by parties hostile to the country and to protect natural resources. Any sale of a holding in Israel Chemicals needs a thorough examination to determine if it’s in the interest of the state, said a government official, who declined to be identified citing the sensitivity of the matter.

To acquire a majority stake in ICL, Potash Corp. (POT) would need consent from numerous Israeli government agencies and authorities, including the Government Companies Authority, the Antitrust Authority, and the Prime Minister, Matthew Korn, a New York-based analyst for Barclays, wrote in a note.

“This likely would not be a quick or easy process,” Korn wrote. “Potash does have political experience in a proposed acquisition of key national natural resources by a foreign buyer to draw on.”

Talks Continue

Executives at the Canadian company held talks with Netanyahu and government agencies about a “possible merger,” Israel Corp. said in a Tel-Aviv Stock Exchange statement yesterday, after Calcalist reported the negotiations. Israel Corp. has a 52 percent stake in Israel Chemicals.

Potash Corp. said yesterday in a statement that it “acknowledges” the statement by Israel Corp. and doesn’t intend to comment further on the matter.

Netanyahu told reporters in Paris yesterday that the government was looking at a proposed deal and that talks were continuing. The biggest takeover of an Israeli company is Warren Buffett’s Berkshire Hathaway Inc.’s $4 billion purchase of Iscar Metalworking Cos. in 2006.

January Elections

Potash Corp. in June dropped a bid to increase its holding in Israel Chemicals to as much as 25 percent from 13.9 percent, saying the application process, filed in December to Israel’s Ministry of Finance, was taking too long.

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

Financial newspaper Globes reported talks between Potash and Israel Corp. about a controlling stake in Israel Chemicals as early as 1999.

The Canadian company also owns 26 percent of Jordan’s Arab Potash Co. (APOT), which harvests minerals from the Dead Sea on the Jordanian shore. It bought that stake for $178 million in 2003, according to its website.

Netanyahu has called early elections for Jan. 22 amid a budget deadlock and growing tensions with Iran over a nuclear program that Israel and the U.S. say is aimed at building an atomic weapon.

A drone launched by the Hezbollah militia in south Lebanon infiltrated Israeli airspace earlier this month and more than 150 rockets have been launched at Israel from the Hamas- controlled Gaza Strip. Israel says Iran supports both Hezbollah and Hamas.

To contact the reporters on this story: David Wainer in Tel Aviv at dwainer3@bloomberg.net; Gwen Ackerman in Jerusalem at gackerman@bloomberg.net

To contact the editor responsible for this story: Timothy Coulter at tcoulter@bloomberg.net

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