Israeli Delek sells control of US insurer Republic Companies for $121 million

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The buyers will also have a two year option to buy the rest of the company from Delek for an additional US$99 million, plus 6.5% annual interest to the point at which it should be exercised. The total valuation for the business is therefore US$220 million. If the option is exercised it will also become payable 50% in cash at the time it is exercised and the balance over a further three years, again at 6.5% interest.

Completion of the transaction is subject to usual closing conditions, including obtaining regulatory approval of the status of the buyers themselves by insurance authorities.

Delek is entering into a shareholders’ agreement with the Buyers, which will regulates the appointment of the Republic’s directors for as long as Delek continues to hold Republic shares or any vendor loan has not been repaid to it. In addition, the shareholders’ agreement provides protections for the Delek minority interest in Republic, including protections against dilution whilst Delek remains a party at interest.

In issuing this announcement Delek also confirms that the estimated valuation of Republic derived from the proposed deal, including the estimated value of the option, is not materially different from the investment balance in Republic included in Delek’s financial statements as at December 31, 2013.

Delek is also being a little careful about the possible risks of the deal not closing, by saying also that there is no certainty that that the transaction will be completed, including because of non-fulfillment of the closing conditions stipulated in the agreement.

Whilst such risks are quite common, it is not always common to go beyond the usual boiler plate of saying simply that “customary closing conditions apply”, so it is possible Delek may have some specific cause for concern. No target date for the closing was given either.

Delek presently owns 100% of Republic indirectly, through its US holding subsidiary, Delek Finance US. Republic is itself a US-based holding company, which provides personal and commercial property and casualty insurance products through affiliated insurance companies and related entities and known in the industry as “The Republic Group”.

Republic provides insurance products through independent agents and affiliated and unaffiliated general agents and managing general agents. In its Independent Agents segments, Republic distributes these products to individuals and small to medium-size businesses through a network of independent agents primarily in Texas, Louisiana, Oklahoma, New Mexico, Arkansas and Mississippi.

In its Program Management and Insurance Services segments, Republic capitalizes on a combination of charters and licenses to develop and manage target-niche insurance products that are distributed through general agents and managing general agents in many additional states.

The group’s over 100 year market presence and long-standing agency relationships currently support a A- rating of excellence from A.M. Best, the US insurance rating agency.

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