Sources inform ''Globes'' that government officials who were involved in the preliminary contacts over the sale of Israel Chemicals Ltd. (TASE: ICL) to Potash Corporation of Saskatchewan Inc. (NYSE; TSX: POT) favor the deal even more following the collapse in Israel Chemicals' share price when Russia's Uralkali JSC (LSE: URKA) quit its potash market cartel with Belarussian Potash Company (BPC). The officials support for the merger contravenes the position of the Ministry of Finance, which is preparing the first meeting of the Sheshinski II Committee to review Israel Chemicals' royalties to the state.
"I am astonished that the Ministry of Finance dismissed out of hand the initiative to merge Israel Chemicals and Potash Corporation, without any proper staff work, and without even considering the matter," a top government official told "Globes" today. "It's possible that the dismissal is even illegal, and we're lucky that Israel Chemicals did not petition the High Court of Justice."
The top official added, "The astonishment is redoubled when in the talks between the government and Israel Chemicals, the company made it clear and promised from the outset that it would keep operations in Israel and that it would not fire even one employee. That is not a routine thing. I am sure that any problem that such a merger would cause can be overcome. The obstacles are only technical."
The Ministry of Finance is digging in םהקר its objections to an Israel Chemicals-Potash Corporation merger. "The potash market is volatile and it is known that when prices fall, Israel Chemicals' productivity and profits fall, along with the share price. What else in new?" said a Ministry of Finance official yesterday.
Israel Chemicals share price fell 17.8% yesterday, and shed another 2.5% by mid-afternoon today, to NIS 35.59, giving a market cap of NIS 37 billion. The share has fallen 50% from its peak, shedding NIS 40 billion in value.
The Ministry of Finance believes that the proposed merger was bad for the Israeli economy, because Israel Chemicals could also become a reserve warehouse for Potash Corporation in the event of a merger. The ministry also rejects the argument that, without a merger, Israel Chemicals is liable to disappear. "This remark is fundamentally flawed," said the official. "We examined it thoroughly and it is simply not true."
Ministry of Finance officials also believe that claims that the new potash market conditions would "kill" Israel Chemicals were intended to frighten Sheshinski II Committee members to keep the government's take from potash sales unchanged. The officials reiterated that the Canadian government's take from Potash Corporation was higher than the Israeli government's take from Israel Chemicals.
The Ministry of Finance's opposition to selling Israel Chemicals to Potash Corporation has undergone several incarnations. When the idea was first mooted in late October 2012, most ministry officials, including then-director general Doron Cohen and Budget Director Gal Hershkowitz supported it. However, Accountant General Michal Abadi-Boiangiu, who has since become the "ministry strongwoman", fiercely opposed the sale. Her objections, along with pressure from the Histadrut (General Federation of Labor in Israel) and the Israel Chemicals workers committee turned then-Minister of Finance Yuval Steinitz against a deal.
With Cohen and Hershkowitz both gone from the Ministry Finance, while Abadi-Boiangiu remains in place, she will likely handle the matter. Moreover, Ministry of Finance director general Yael Andoran's conflict of interests agreement explicitly excludes her from dealing with any Israel Corporation (TASE: ILCO) company, including Israel Chemicals, for six months from taking up her post, because she served as an external director at sister company, Oil Refineries Ltd. (TASE:ORL), for 11 months. She cannot play any role matter relating to Israel Chemicals before October.
Although Minister of Finance Yair Lapid also opposes selling Israel Chemicals, Prime Minister Benjamin Netanyahu will have to step up to the plate and decide whether to adopt the Ministry of Finance's position, or that of the other voices in the government.
Published by Globes [online], Israel business news - www.globes-online.com - on July 31, 2013
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