PotashCorp Re-evaluating Stakes in SQM and ICL

PotashCorp Re-evaluating Stakes in SQM and ICLJust days after Sociedad Química y Minera de Chile (NYSE:SQM) released less-than-stellar Q1 results, the company was dealt another blow. Potash Corporation of Saskatchewan (TSX:POT,NYSE:POT) revealed on May 21 that it is re-evaluating whether to keep its stakes in both SQM and Israel Chemicals (NYSE:ICL).

PotashCorp CEO Jochen Tilk spoke at a BMO (TSX:BMO,NYSE:BMO) investor conference in New York on Thursday about the various companies it holds interests in, including Sinofert Holdings (HKEX:0297) and Arab Potash Company, both of which he considers "strategic" and beneficial. However, looking at SQM and ICL, Tilk said that if PotashCorp can't build on the majority stakes it has, it may not keep them.

As it stands, the company has very little say in how SQM and ICL do business, while it has control over marketing and sales for both Sinofert and Arab Potash.

PotashCorp made a long-winded attempt to acquire ICL in 2013 under former CEO Bill Doyle. However, after six months it abandoned the plan. That may be why Tilk is treading lightly — he said at the conference that his intent was not to signal any plans for investments in either. "We can't be counter-productive by doing or acting (to) impair the value of the companies. Timing is everything," Tilk said.

Reacting to that statement, ICL CEO Stefan Borgas said in an interview that if PotashCorp wants to increase its stake in the company, it should be direct with Israel's government and Israel (TLV:ILCO), ICL's biggest stakeholder. "Our advice would always be for anybody who has these kind of interests, not just in ICL, but in general, is be as specific as you possibly can so there is actually a concrete proposal on the table, rather than just discussing concepts," he said.

Big players missing the mark

As mentioned, SQM's Q1 results missed the mark. The company reported a decrease in its net income, with potash sales for the first quarter totaling US$87.9 million, down from $151.9 million in the first quarter of 2014.

Conversely, ICL seems to be doing alright in a market filled with uncertainty. Borgas spoke with The Street on Thursday, commenting on how popular his company's products have been in emerging markets. "India is growing very nicely and we are investing millions of dollars to educate farmers there," he said. "China and Brazil continue to grow as well and we see a lot of potential in Africa, where we have some interesting new projects."

For its part, PotashCorp saw earnings of C$370 million in Q1, and its share price took a hit when it cut its full-year earnings forecast. While the company noted higher taxes as one of the reasons for the cut, reduced income from its various minority stakes in foreign fertilizer producers also played a part.

Investors will no doubt be watching to see what PotashCorp decides to do with its stakes in SQM and ICL. They'll also no doubt be considering the effects the situation could have on junior potash companies and the market as a whole. As yet the answers to those questions remain unclear.

 

Securities Disclosure: I, Kristen Moran, hold no direct investment interest in any company mentioned in this article.

Related reading:

What the Allana-ICL Deal Could Mean for Potash M&A

Saskatchewan Government Increases Potash Tax; PotashCorp Responds

PotashCorp Re-evaluating Stakes in SQM and ICL from Potash Investing News

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