The threats made by Israel Chemicals Ltd. (TASE: ICL) to end the majority of its investment in Israel and to fire many workers is one of the biggest and ugliest financial media spins we have seen in a long while.
Let’s begin at the end: Israel Chemicals cannot afford to abandon its Dead Sea potash resource. Moreover, if this company tries to lay off thousands of workers, it will encounter a brick wall in the form of the strongest workers’ unions in the Israeli market. Therefore, Israel Chemicals’ threat looks like a bluff, just like those made by Noble Energy Inc. (NYSE: NBL) and Delek Group Ltd. (TASE: DLEKG) when the first Sheshinski Committee published its recommendations on the state's take from gas and oil discoveries.
ICL won’t leave
The draft recommendations of the Sheshinski II Committee seek to strike a balance between maintaining adequate profitability for ICL, and making adequate royalty payments to the government, i.e., the taxpayer. This follows many years during which ICL enjoyed tax benefits under the Law for the Encouragement of Capital Investment, which it lost eligibility for a little over two years ago, and, with it, the relatively low tax rates. Sheshinski II seeks to fix a years-old distortion, not to deliver a blow to ICL. Any attempt to otherwise describe the reality is itself a severe distortion, to say the least.
ICL will not abandon the Dead Sea, period. It doesn’t matter how many threats are sounded by management - ICL will not leave. The company’s revenue last year was $6.2 billion, half of it in Israel. You don’t walk away from $3 billion so quickly. Profit last year was $820 million. But there is another side to the story, beyond money. Dead Sea potash can be stored for long periods of time, due the environmental conditions, unlike potash at other mines around the world. This is a unique advantage of the Dead Sea, and it is one of the reasons that Canadian potash giant Potash Corp. is eyeing ICL and has tried to buy control of the company.
Potash
And on the topic of Potash Corp., we should mention that the company holds 13.84% of ICL, and is the second-largest shareholder, after Israel Corporation (TASE: ILCO), which holds 52.29%. Why haven’t we heard any threats from Potash Corp. in light of the Sheshinski II recommendations, which have been developing for such a long time now? Why aren’t we seeing a PR blitz coming from them, alongside threats to end their investment in Israel? Maybe, just maybe, Potash doesn’t want to make threats that it has no intention of following through on, because it knows that Dead Sea potash will be attractive after Sheshinski II as well?
Flashback to 2010
Threats have become routine at ICL recently, whether directed at the Sheshinski Committee, or at Minister of Health Yael German over the right to mine Sde Barir. Note what ICL CEO Stefan Borgas said last December at the Sheshinski Committee meeting: “Raising the state's take from ICL will lead to a reduction in the company's contribution, and harm public interests. We want to invest a lot in Israel in the coming decade, in order to preserve and expand our production operations here in Israel, but I simply do not understand why the government is doing everything it can to prevent us from being able to invest, and is pushing us almost forcibly to invest in other countries, which are actually very interested in our investments.”
Does that sound familiar? No? Allow me to refresh your memory. In 2010 Noble Energy and Yitzhak Tshuva’s Delek Group staged an all-out war against the first Sheshinski Committee, which recommended raising the government's take from the gas discoveries, following the discovery of the Tamar gas field. Then, too, the companies threatened that the Sheshinski Committee would chase investors away, and said that the government could not change the laws retroactively. At one of the heated hearings on the subject in the Knesset, a Noble Energy representative even threatened that the US would take Israel to the International Court of Justice in The Hague.
And the rest is history. The recommendations of the first Sheshinski Committee passed, the Tamar field opened, and the gas is flowing. Because when you are holding onto a treasure, you don’t rush to let it go.
The layoffs that won’t happen
If there is a threat more hollow than the threat to leave Israel, it is the threat of massive layoffs at ICL. The same ICL that conducted months-long negotiations over the voluntary retirement of 115 Rotem Amfert Negev workers is now threatening to fire thousands of workers? The same ICL that sought to fire 127 workers, encountered a workers union as strong as a rock, and eventually reached a settlement in which it gave exceedingly generous benefits to the workers it let go - now it will fire thousands of workers? Hundreds? One would have to be very, very naive to believe this.
Government decision makers would be well advised to ignore ICL’s empty threats, and to act in favor of the public interest, to repair the historic injustice. The effects of Sheshinski II’s recommendations will be very similar to those of the first Sheshinski Committee: the threats will vanish, and the investment will continue.
Published by Globes [online], Israel business news - www.globes-online.com - on May 19, 2014
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