Potash Corp seeks permission to raise ICL stake

Fertilizer maker PotashCorp is seeking permission from Israeli authorities to raise its stake in rival Israel Chemicals (ICL) to 25 per cent, a government source said.

"PotashCorp has requested approval from the government to raise its stake to 25 percent," the source, who asked not to be identified, told Reuters on Monday, confirming a report in the Calcalist financial daily.

Saskatoon-based PotashCorp, the world’s largest fertilizer manufacturer, holds 13.9 per cent of ICL’s shares valued on the market at 6.5 billion shekels (US$1.7 billion). An 11.1 per cent stake has a market value of about 5.23 billion shekels.

Shares in ICL, one of the world’s largest potash producers and the second-largest company on the Tel Aviv Stock Exchange, were up five per cent at 37.65 shekels in afternoon trade.

A spokeswoman for ICL said the company does not comment on matters relating to its shareholders. Potash last acquired ICL stock in 2010 when it bought about 2.5 per cent.

A spokesman for PotashCorp confirmed that the company has asked for permission to raise its stake, but stressed that it is not a  foregone conclusion  that it will do so.

PotashCorp said that due to threshold restrictions it needs approval from the Israeli government to allow it to increase its stake to between 14 and 25 per cent.

"If the application is granted, it will give us one more option in our use of free cash flow when we are making investment decisions," said PotashCorp’s head of public affairs, Bill Johnson.

"It is not a foregone conclusion that we would acquire any additional shares, but we are seeking the flexibility to move beyond the current threshold," he added.

ICL is a strategic company which has exclusive rights to some of Israel’s most valuable natural resources, including Dead Sea minerals. The government was given a golden share in ICL when it was privatized and as a result government approval would be required for PotashCorp to raise its stake.

Barclays Capital analyst Joseph Wolf said PotashCorp’s request is not surprising, noting it has a strategy to own good potash assets and already holds 30 per cent of Arab Potash Corp, which mines the Dead Sea from the Jordanian side.

"We believe this news should be a positive catalyst for the shares in the short term, as there has not been that much stock-specific good news lately," said Wolf, who rates ICL "overweight."

ICL is controlled by the Ofer family through holding company Israel Corp., which owns 52.3 per cent. PotashCorp is the company’s second largest shareholder.

According to Calcalist, Potash is seeking to purchase public shares, mainly those held by institutional investors in Israel and abroad. The investors were contacted by a foreign bank which did not disclose the purpose of the possible acquisition.

Estimates on the market are that although PotashCorp seeks to acquire the stock now as a financial investment, it could aim to gain control of ICL in the future, Calcalist said. If it seeks control of ICL, it will need further approval from  Israeli authorities.

A number of companies have begun to either expand existing potash operations or build new potash mines due to increasing demand for the crop nutrient from China, India, Brazil and other emerging economies. Much of this development activity has been centered in Saskatchewan, home to PotashCorp and the majority of the world’s potash resources.

Analysts noted that boosting its holding in ICL would be a smart move for PotashCorp as the stock was inexpensive.

Potash Corp shares were down C27 cents at C$40.31 in early trading on the TSX on Monday.

– Additional reporting for Reuters by Steven Scheer.

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