Kushner discount demands imperil Phoenix deal


Market sources believe Yitzhak Tshuva’s Delek Group will refuse the request for a 15% cut in the insurance company’s sale price.

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The sale of control in The Phoenix Holdings Ltd. (TASE: PHOE1;PHOE5) insurance group has reached a dead end. Market sources believe that Delek Group Ltd. (TASE: DLEKG) will refuse the request of the potential buyers, the US Kushner family, for a 15% discount (about $64.5 million).

As far as is known, the Kushner family is giving a number of reasons for its request: the labor union being formed at Phoenix, the high degree of regulation in the Israeli market, findings that came to light in due diligence at the company, and the current multiple at which Phoenix is traded on the TASE. According to market sources, today’s reports on the matter took Yitzhak Tshuva’s Delek Group by surprise. The Kushner family and Delek Group did not respond to the report.

The parties are still negotiating with each other, and the Kushner family with the Ministry of Finance Commissioner of Insurance, Capital Markets, and Savings, which is the sole authority for approval of holding a controlling interest in an insurance company in Israel. A meeting between the parties is scheduled for next week, when a decision about what course to take will be made, after the parties have already spent five months negotiating.

One market source said today that up until now, it had appeared that the main obstacle was obtaining approval from the Commissioner of Insurance. He added that it is possible that the demand for a discount on the price was due to the Kushners’ concern that they would not obtain approval from the Ministry of Finance, and are therefore seeking to withdraw from the deal as a result of “ordinary” business circumstances. As of now, it is unclear whether the Ministry of Finance is inclined to grant the Kushners approval for holding a controlling interest in Phoenix, or to do what they did earlier this year, when they disqualified a group of Chinese investors that wanted to acquire control of Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS).

According to a different market source, however, asking for a discount after months of negotiations and conducting due diligence is a recognized measure with many precedents. The source stated, “This is a kind of crisis in the process with Delek Group, but the Kushner family is satisfied with the company, and is not seeking to escape from the deal.”

Exclusivity has expired, and equity has grown

At the beginning of July this year, Delek Group and the Kushner family, led by Jared Kushner, signed a non-binding letter of understanding for the sale of a 47% controlling interest in the insurance and financial group for NIS 1.7 billion (Phoenix’s equity, plus 5% annual interest until the date on which the deal is completed). The exclusivity period agreed by the parties has since expired, and it has also been reported that the buyers are considering adding another investor to the deal.

As of the end of the third quarter of this year, Phoenix’s equity had grown 5% since the beginning of the year. The company is currently traded at about $702, 000 market cap, reflecting a capital multiple of 0.7% and a value of $2.66 billion for the parcel of shares that the Kushner family is to buy from Delek Group.

Published by Globes [online], Israel business news – www.globes-online.com

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