Yesterday's remarks by Minister of Finance Yair Lapid that he would conduct a militant policy to keep Israel's natural treasures today continued to batter the shares of Israel Chemicals Ltd. (TASE: ICL) and its parent company, Israel Corporation (TASE: ILCO). His remarks, made in response to media reports about talks for the sale of Israel Chemicals to Potash Corporation of Saskatchewan Inc. (NYSE; TSX: POT), have sent Israel Chemicals' share price down 7% in two days, and the share price of Israel Corp. down 8%.
Israel Chemicals' market cap has fallen by NIS 4.8 billion, and Israel Corp.'s market cap has fallen by NIS 1.5 billion. The two companies have lost their entire gain since reports of a possible sale of Israel Chemicals to Potash Corporation first emerged in October 2012.
Sources inform ''Globes'' that a substantial part of the plunge in the two companies' share prices is due to foreign investors, especially foreign special situation funds, which sold their holdings in response to the growing public objections to a deal. Special situation funds invest, by definition, on the basis of particular circumstances, such as an expected deal, and are not usually long-term investors.
The proposed sale of Israel Chemicals to Potash Corporation was big news before Israel's Knesset elections. Afterwards, in late February, Potash Corporation CFO Wayne Brownlee said that talks had been suspended until after a new government was formed in Israel.
The reports increased the importance of Israel Chemicals and Israel Corp. for foreign investors, who showed growing interest in developments. Meanwhile, public criticism against a deal grew in response to fears about harm to Israel's national interests and to Israel Chemicals' employees.
In response to Lapid's remarks, Barclays Capital analyst Joseph Wolf said today, "We expect continued news on the Potash front, but would not expect any formal offer until Israel’s 2013 budget is passed. While Minister of Finance Lapid has stated his opposition to a deal, we expect that ultimately economics and not politics will drive any final decision as this potential deal has foreign investment implications that could reach across industries."
Wolf gives Israel Chemicals an "Outperform" recommendation with a target price of NIS 58, a 30% premium over the current price. He favorably cites the company's dividend yield of 6.4%. He adds that, despite the company's weakness in the fourth quarter of 2012, the future looks brighter, thanks to potash contracts signed with Indian and Chinese customers. He therefore predicts that Israel Chemicals' potash revenue will grow by 6% in 2013.
Published by Globes [online], Israel business news - www.globes-online.com - on April 11, 2013
© Copyright of Globes Publisher Itonut (1983) Ltd. 2013