Dead Sea Works, in general meeting convened yesterday, approved the formation of a joint company, together with the company’s controlling shareholder Erwin Eisenberg, for the purpose of investing in a potash plant in China. Israel Chemicals, parent company of DSW, supported the proposal, as also did 82% of the investors who are not parties at interest in the company.
The resolution provides for a company jointly held by DSW (92.5%) and controlling shareholder Erwin Eisenberg (through family company UDI), to invest a sum of $162 million in the joint venture (in which DSW’s share will be $150 million), and to hold one third of its shares. The balance of shares in the project will be held by the Chinese government.
Total planned investment in the Chinese potash plant amounts to $486 million, one third of which consists of shareholders’ equity (DSW’s portion amounting to $50 million), and the balance of bank loans, against which it will record liens on its assets. The potash plant will be set up in the Shanghai province in western China.
DSW’s projected potash plant in China was severely criticised recently by former company general manager Uri Ben Noon, who resigned in December 1997 following a dispute with controlling shareholders Yigal Dimant (CEO of ICL), and Erwin Eisenberg (Dimant’s brother-in-law).
Two weeks ago, Ben-Noon alleged that Eisenberg, out of personal considerations, preferred to impose the burden of the risk-intensive investment on DSW, in which he has a sequential holding of only 20%, rather than, as originally planned, through UDI, wholly owned by his family. "Dead Sea Works’ chances of recouping its investment are non-existent", Ben-Noon alleged. "This deal would never in its life have gotten by a Board of Directors in the normal way".
Ben-Noon maintains that the memorandum of understanding signed in 1991 between DSW and the late Shoul Eisenberg (prior to his take-over of ICL), provided that the company would not invest any of its money in the project but would provide technology, in return for half of the holdings of project entrepreneur Eisenberg. "The memorandum of understanding was twice renewed for a period of two to three years, and ended in December 1997, the day I left", Ben-Noon said.
"This time the agreement was not renewed, and the entire investment has been thrown upon DSW".
According to the agreement approved today in general meeting by DSW, the company will bear almost the entire investment of the joint company, and will also pay UDI a commission of 5% of its revenues in respect of the sale of equipment and technology to the project. The DSW board claims that this commission reflects the value of essential services rendered to it by UDI in China, expressing its contribution to the initiation of the deal and its intensive participation in the relevant negotiations.
DSW general manager Shaul Ben-Zeev’s comment on the resolution of the general meeting was that "The deal with UDI is insignificant". As regards Ben-Noon’s allegations that the investment burden had been transferred to DSW’s shoulders, Ben-Zeev said "The transaction was concluded in good faith, nobody attempted to cheat. The previous memorandum of intent expired, and was not renewed".
Published by Israel's Business Arena October 15, 1998