In a notice to the TASE, Israel Chemicals Ltd. (TASE: ICL) today rejected a request by Volkswagen AG (XETRA: VOW; LSE: VKW) that wants to pull out of their joint venture, Dead Sea Magnesium Ltd. (DSM), and transfer its stake to Israel Chemicals. Volkswagen is also removing its directors from DSM's board. Israel Chemicals owns 65% of DSM and Volkswagen owns 35%. Volkswagen says that the 1996 agreement setting up the joint venture allows it to cancel its partnership. Israel Chemicals disagrees, and says that Volkswagen was still obligated to meet its share of DSM's debts to the banks and third parties.
DSM has 380 employees and owes the banks more than $100 million.
Israel Chemicals said in response, "Throughout the partnership, Volkswagen's executives expressed their commitment to the company, were active partners in its management, and together with Israel Chemicals, injected capital to finance its accumulated losses, and even repaid the plant's set-up loans."
Volkswagen's Israeli spokesman responded, "We can confirm that Volkswagen AG has exercised its contractual rights and sold its 35% minority share-holding in Dead Sea Magnesium to ICL, as stipulated in the Joint Venture Agreement signed in 1995. Volkswagen has supported Dead Sea Magnesium for the last 12 years and together with the support of ICL, DSM has developed into a major western magnesium supplier for the automotive industry.
Volkswagen's spokesman added that the company decided to sell its minority shareholding in DSM in an effort to concentrate on its core business and competencies.
Israel Chemicals' spokesman also said, "It is unacceptable that a leading international company, which has always expressed its faith in DSM will unilaterally abandon the company in the way that it did. Israel Chemicals considers this an ugly, gross, and aggressive act both morally and business-wise."
Israel Chemicals said, "The company believes that this unilateral act by Volkswagen will not meet the legal standard, not to mention accepted business ethics, especially by a company with a reputation like Volkswagen's. Israel Chemicals will meet all of DSM's obligations, and expects its partners to meet theirs. The company is also examining legal measures to compel its partners to meet their obligations."
Despite the news, Israel Chemicals' share rose 4.8% today to NIS 27.45, and its parent, Israel Corporation (TASE: ILCO) rose 5.1% to NIS 955.50.
Published by Globes [online], Israel business news - www.globes-online.com - on December 16, 2008
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