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Watchdogs urge stake sales as price of Agrium-PotashCorp merger

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Shares in Chile-based SQM and Israel's Israel Chemicals diverged on news that fertilizer giant PotashCorp, a big shareholder in both, is being forced by antitrust watchdogs to sell some of its minority stakes.

Canada-based PotashCorp revealed on Thursday that while talks to win approval of its $36bn merger with rival Agrium had "progressed" with Canadian and US antitrust officials, watchdogs in China and India were demanding asset sales as a condition of improving the deal.

PotashCorp said that it had told that Chinese and Indian authorities "intend to condition" approval of the Agrium merger "on the divestment of certain of PotashCorp's offshore minority ownership interests".

PotashCorp owns 28% of Jordan-based Arab Potash Company, 32% of SQM, 14% of Israel Chemicals (ICL) and 22% of China's Sinofert.

Merger delay

No further details of the regulators' demands were given, although Agrium said that PotashCorp had been asked to dispose of three of the four stakes.

The impact on shares in the groups in which the group has stakes diverged, with ICL shares tumbling 4.0% at one point, before recovering to stand at 15.24 shekels in late deals, a drop of 2.3% on the day.

SQM shares, meanwhile, touched a record high of $49.79 in New York before easing back to $49.4842, a gain of 2.4% on the day.

Takeover prospects

The contrary move reflected investors' differing opinion of the prospects for SQM and ICL, without PotashCorp involvement.

Were PotashCorp to sell out of ICL, "with it would likely go the only real chance of a takeover" of the Israeli group, and a windfall for investors, a London-based fund manager told

Israel's government owns 46% of ICL, and would likely hold some sway over the buyers that PotashCorp sold to.

"For SQM, the exit of PotashCorp might be seen as increasing the chance of a takeover," by allowing other bidders an easier entre.

SQM, which produces iodine and lithium as well as potash-based fertilizers, could be seen as an appealing target for a number of potential suitors, with Chinese private equity group GSR Capital earlier this year reported to be interested in taking a stake.

'Appreciable adverse effect'

The move by India's antitrust regulator, the Competition Commission of India, follows concerns voiced by the organisation in March, when it said it was of the "prima facie opinion that the proposed [PotashCorp-Agrium] combination is likely to have an appreciable adverse effect on competition".

The move would concentrate ownership of the North American Canpotex potash export consortium, which is currently controlled by Agrium, PotashCorp and US-based Mosaic.

The commission also noted that PotashCorp "has minority interests in other companies" – naming ICL, SQM and Arab Potash Company – "which sell potash to Indian purchasers".

PotashCorp added that the disposals under consideration would not threaten the tie-up with Agrium, nor the $500m in operating synergies targeted from the deal.

However, the group acknowledged some delay from the regulators' announcement, saying that the deal, which had been expected to complete in the July-to-September period, was now seen being finalised in the October-to-December quarter

Shares in PotashCorp itself gained 1.1% to Can$21.85 in morning deals in Toronto, where those in Agrium rose by 1.1% to Can$122.56.

By Mike Verdin

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