Israel Chemicals: Selling a Company Based on Future Potential

Selling a Company

One of my goals as an M&A expert is to help companies prepare for a sale. Such preparations can take months – or even years – depending on the reason for selling. One transaction may involve selling part of the company solely for the purposes of raising capital while another involves a complete merger or acquisition so as to allow the seller to get back to its core.

It recently came to light that Israel Chemicals was looking to sell its British mining operations to Sirius Minerals for something in the region of between £113 million to £150 million. The sale would mainly involve Israel Chemicals' Boulby potash mine in Yorkshire. Interestingly enough, Sirius Minerals is not looking at Boulby based on its history in potash. They are looking toward the future.

Israel Chemicals began mining polyhalite in recent years to make up for falling potash sales. Polyhalite is a natural fertiliser that is sold only by Israel Chemicals under the brand Polysulfate. Sirius Minerals is well aware that the product could have incredible future potential after Israel Chemicals demonstrated through field trials that polyhalite has met their expectations as a fertiliser.

Working on a Deal?

The current rumours about Israel Chemicals selling their British mining operations to Sirius Minerals is still just that: a rumour. We know of the rumour because of the kinds of things Israel Chemicals has to go through before the mining operations can be sold. Selling a company is not an overnight process that connects buyers and sellers and completes the transaction before the news media gets wind of it.

News reports suggest that Israel Chemicals and Sirius Minerals are working together to find an avenue of cooperation. That is industry speak for looking to find a way to make a deal. Selling part of the company is not the objective here, so Israel Chemicals has to make their British mining operations as attractive as possible if they are to secure the deal.

Sirius Minerals Due Diligence

Even as Israel Chemicals is preparing for the sale of their Yorkshire mining business, all possible buyers (including Sirius Minerals) will do their due diligence. They will look at every possible detail including the fact that Israel Chemicals extracted 250,000 metric tonnes of polyhalite from the mine last year, generating sales of more than £18 million. They will be looking at projections of up to 1 million tonnes by 2019. They will even be looking at falling potash prices as well.

Israel Chemicals appears to be getting ready to dispose of their Boulby mining operations. They know that selling a company of this nature is not necessarily going to be easy given the state of the potash market. Perhaps that's why they began mining polyhalite. The new mining operation may have been a set-up for preparing Boulby for eventual sale. It wouldn't be the first time a company went to such great lengths in order to make a future sale more lucrative.

Sources:

Haaretz – http://www.haaretz.com/israel-news/business/.premium-1.811633

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Author: Tim Luscombe

Hello, I'm Tim and I'm a specialist in corporate finance for the owner managed business. If you've been approached to sell your business, or you are thinking of buying a business or you just want to know what your business ...


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