Judith and Yehuda (Lucien) Bronicki, who more than anything are identified with Ormat Industries Ltd. (TASE: ORMT), the company they founded in Yavneh in 1965, have decided to relinquish control of the company. This morning, Ormat Industries confirmed that the couple were negotiating to sell a substantial part of their holdings in Ormat to Shikun u'Binui Holdings Ltd. (TASE: SKBN), controlled by Shari Arison.
If the Bronickis do sell a controlling stake in Ormat, then they are letting go their life's work: a prestigious company that they built from scratch, and that now has annual sales of about $400 million.
For its part, Shikun u'Binui reported that is was negotiating over a substantial investment of hundreds of millions of shekels in shares of Ormat. This means that, if such a deal goes ahead, the couple, who own 35% of Ormat with a market value of about NIS 1 billion, will part from the controlling stake in the company.
The negotiations on the sale of shares comes against a background of the Bronicki couple's need to pay a huge debt of some NIS 600 million at the end of the year to Bank Hapoalim (TASE: POLI) (also, like Shikun u'Binui, controlled by Shari Arison). However, the negotiations have been halted for now because of the gap between the price at which the Bronickis are willing to sell and what Shikun u'Binui will pay, so it may be that a deal will not take place.
Ormat Industries' main asset is 60% of Ormat Technologies Inc. (NYSE: ORA), which engages in construction of geothermal power plants around the world and production of equipment for such plants. The Bronickis' son Yoram Bronicki is president of Ormat Technologies and its chief operating officer.
Until 2007, the Bronickis controlled Ormat Industries undisturbed,even though they owned less than 30% of the company. During that year, real estate group Gazit Inc. (TASE: GZIT), controlled by Chaim Katzman and Dori Segal, started to buy up Ormat Industries shares, and by February 2008 reached a holding of 19.35%, at a total cost of some NIS 1.2 billion.
In response to the threat to their control of Ormat Industries, the Bronickis bought shares at NIS 61.78 per share, to the tune of NIS 600 million, and raised their stake to 35%. They obtained the finance for buying the shares from Bank Hapoalim, which granted them a loan of $150 million, with part of the shares serving as collateral.
The purchase was made at peak prices, and later, because of the fall in the value of shares in Ormat, and hence the shortfall in coverage of the debt, the Bronickis had to place a lien on their entire stake in Ormat Industries, which, as mentioned, is currently worth about NIS 1 billion.
At the end of the year, the couple must make the first principal repayment, but as far as is known, they do not have the wherewithal to do so. Since they bought the additional shares, Ormat Industries has not distributed large dividends, but has continued paying dividend at it traditional level, amounting to $11 million a year in the past two years.
In an attempt to find sources for repaying the debt, the Bronickis recently held talks with private equity fund FIMI. The outline of the putative deal was that FIMI would grant the couple a loan of $100 million, which would replace the loan from Bank Hapoalim, while FIMI would be given options on the Bronickis shares in Ormat Industries. The Bronickis subsequently changed direction, and decided to sell their shares in order to repay the debt to Bank Hapoalim, hence the negotiations with Shikun u'Binui, currently stalled over price.
Since the reports last month of talks between Ormat and FIMI, Ormat Industries shares have climbed about 25% to NIS 24, giving the company a market cap of NIS 2.8 billion. Before that, the share suffered from weakness because of losses at subsidiary Ormat Technologies.
In 2010, Ormat Technologies' net profit fell 46% to $37 million. The fall was due to a sharp drop in revenue from the products segment, and to problems in operating the North Brawley plant in California, which led to a $9 million loss in the first quarter of 2011. Since the beginning of 2010, Ormat Technologies' share price has fallen 40%.
Published by Globes [online], Israel business news - www.globes-online.com - on July 7, 2011
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