Improved offer will include pledges to maintain staffing levels, aimed at overcoming employee opposition to the deal, and to improve environmental protection.
By Yoram Gabison Mar.15, 2013

Potash Corporation of Saskatchewan intends to sweeten its bid for control of Israel Chemicals, Bloomberg News reports.

The improved offer will include pledges to maintain staffing levels, aimed at overcoming employee opposition to the deal, and to improve environmental protection.

Potash may also offer to list its shares on the Tel Aviv Stock Exchange. With a market capitalization of $35.6 billion PotashCorp would be the largest company traded in Israel. The current leader on the TASE is Teva Pharmaceutical Industries.

The Canadian company already holds a 13.9% stake in ICL. Jerusalem has veto power over anyone acquiring more than 14% of the shares. ICL shares briefly gained as much as 2.6%, to NIS 47.26, in very heavy trading before retreating for a 0.7% loss.

The Israel Corporation, which is controlled by Idan Ofer, owns 52% of ICL’s shares. If the deal goes through, presumably with a control premium paid to Israel Corp. on top of market value, it would go down as the largest takeover to date of any Israeli company.

PotashCorp is also said to be considering conducting part of the purchase in cash rather than a share swap as previously reported. A cash payment would generate immediate tax revenues for the governmen. A swap would only be taxed when the shares were sold.

“Potash has to do everything within their power to show that they are coming in friendly terms and that this deal is good for Israel,” Gilad Alper, an analyst at Excellence Nessuah Investment House, told Bloomberg. “The odds are still against them as here they are seen as a foreign interloper.”

ICL enjoyed tax benefits amounting to $121 million in 2012 from approved and preferred enterprises under Israel’s Law for the Encouragement of Capital Investments, according to the company’s financial report published Wednesday. This reduced its tax liability by 7.9% of pretax earnings from the statutory 25% rate. The equivalent tax benefits in 2011 amounted to $128 million, or 6.9% of pretax earnings.

ICL’s effective tax rate for 2012 was 14.5% after receiving $57 million in tax credits and deductions from overseas. These included $20 million in Spain, apparently attributable to a tax credit from the Catalonian government for expaning the Suria potash mine.

ICL points out that it has accumulated trapped profits − earnings arising from approved enterprises in Israel likely to generate a tax liability if distributed through dividend payments − of $1.5 billion. It also reports that it hasn’t deferred taxes for the trapped profits.

As a result, it appears unlikely that the company intends to distribute the profits as a dividend in the foreseeable future, despite legislation passed in November permitting their distribution at a reduced tax rate.

ICL also reports having paid $125 million in royalties to the government in 2012, compared to $76 million in 2011. The difference isdue to an agreement with the government last July 2012 over funding the removal of salt from the southern basin of the Dead Sea to prevent the flooding of beachfront hotels.