EUR 850.00 For Business Accounts Only

Morningstar | Ponce Lawsuit Delays Nutrien's SQM Equity Stake Sale to Tianqi, but We Think the Deal Will Get Done

On Oct. 11, SQM's largest shareholder, Julio Ponce, who owns around a 37.5% equity stake, filed a lawsuit that delayed the sale of Nutrien's 24% equity stake in SQM to Tianqi Lithium. The deal had been approved by the Chilean anti-trust court a week earlier, which was the last remaining regulatory barrier for the deal to close. On Oct. 22, a five-judge panel will hear arguments from lawyers for all parties involved and could either dismiss the lawsuit or call for a full hearing at a later date.

If the initial hearing on Oct. 22 results in a full hearing, it may delay the closing of the deal into 2019. However, we continue to expect Nutrien's sale to Tianqi will close. With no changes to our outlook, we maintain our narrow-moat Nutrien fair value estimates of USD 65 per share and CAD 85 per share. Our USD 65 per share fair value estimate for narrow-moat SQM is also unchanged.

If the five-judge panel calls for the full hearing, Tianqi may have to agree to additional provisions that further restrict Tianqi's access to SQM's confidential information. In order to gain the initial anti-trust court approval, Tianqi agreed to provisions designed to limit its access to SQM's business. The provisions include requiring Tianqi to appoint board members who are not employed by Tianqi for the first six years.

Further, we continue to think Tianqi's ability to influence SQM's actions will be limited. Assuming the deal closes, Tianqi would only control three of SQM's eight board seats. Ponce will retain the ability to appoint the tie-breaking board chair vote, which would further limit Tianqi's control. Although SQM may sell lithium to Tianqi's battery business, we continue to expect that any lithium sale from SQM to Tianqi's battery business would occur at short-term prices similar to those of other lithium producers.