Israel Chemicals Ltd. (TASE: ICL) and Volkswagen AG (XETRA: VOW; LSE: VKW) have settled their dispute over their joint venture, Dead Sea Magnesium Ltd. (DSM). Volkswagen will inject $30 million into DSM and Israel Chemicals will inject $55.7 million, and Volkswagen will transfer its 35% stake in the venture to Israel Chemicals.
The capital injection is intended to improve DSM's financial situation. The venture suffered heavy losses, amounting to tens of millions of dollars, because of its high production costs and aggressive competition from Chinese magnesium producers. DSM owes the banks $100 million, which Israel Chemicals and Volkswagen guarantee on the basis of their proportional holdings in the venture (Israel Chemicals owns 65% of DSM and Volkswagen owns 35%).
In December 2008, Volkswagen notified Israel Chemicals that it was unilaterally quitting DSM. Israel Chemicals was taken by surprise by Volkswagen's announcement, although Volkswagen cited a clause in the partnership agreement allowing it to do so. Volkswagen's departure meant that it no longer guaranteed DSM's bank debt.
Israel Chemicals and Volkswagen established DSM 14 years ago. Volkswagen saw business potential in the venture, particularly for the production of magnesium for the vehicle industry.
Published by Globes [online], Israel business news - www.globes-online.com - on July 6, 2009
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