Even as IDB Development and its controlling shareholder, Eduardo Elsztain, are pushing to change the Ministry of Finance framework for insurance supervision in order to sell its stake in Clal Insurance on the stock exchange, other groups are expressing preliminary and non-binding interest in buying the controlling interest in the insurer as part of a strategic transaction, including investment firm Warburg Pincus and the Bronfman family.
Representatives from both groups recently met with the insurance regulators to seek clarification over the possibility of the purchase. Supervisor of Capital Markets, Insurance and Savings at the Ministry of FinanceDorit Salinger made no commitment while raising several concerns that would require clarifications from the potential buyers were they to pursue their interest.
The Ministry of Finance, for its part, has not even started an initial investigation of the interested parties. An investigation of candidates for the control of Clal Insurance will only be conducted after an agreement is signed and an official request is filed for the holding of the controlling stake in the insurer.
Meanwhile, without a change in the regulator’s stance, the clock is running out on the sale of Clal insurance shares held by IDB Development. The regulator ordered IDB Development, or the trustee of the controlling interest in Clal Insurance, Moshe Tery, to sell at least 5% of Clal Insurance by May of 2016.
Matthew Bronfman, who previously held control of a regulated Israeli institution Discount Bank has yet to be tied to Clal Insurance or any other insurance business. In December 2014, the Bronfman Group liquidated its holdings in Discount Bank, at the end of the fifth distribution of shares to end its control of the bank, which started back in 2013.
A letter from the regulator
The Bronfman-Schron Group, which heldcontrol in Discount Bank and ceded it sold its shares at the time on the stock exchange, giving up both the premium for its controlling stake and placing the shares under pressure by creating the impression of a quick exit from an investment, which was acquired by the Bronfman family in 2005 as part of the bank’s privatization.
Market experts believe the experience Bronfmangained as a controlling interest in an Israeli bank will not necessarily give him an advantage in seeking control of Clal Insurance because of circumstances created by the global financial crisis in 2008 and its consequences for the bank, and the way the owners responded as opposed to the expectations and directives of the banking regulator.
In 2009, the Bank of Israel sent a letter to Discount Bank criticizing its conduct and stressing to its leaders that the bank had rapidly expanded its operations without considering its low capital adequacy ratio. Furthermore, the Bank of Israel expected the Bronfman family to inject capital into Discount Bank which never happened.
Warburg Pincus, established in 1996, has invested more than $45 billion over the years in hundreds of companies, and already expressed a measured interest in acquiring the controlling stake in Clal Insurance last year before the only remaining candidates for the purchase were Chineseentities thatagreed to pay according to the company’s capital (a double-digit premium over its market value). But even then, as now, it was merely preliminary, non-binding interest.
IDB Development said,“Given the current market, we should not be selling the Clal Insurance stake through the framework ordered by the regulator because there is room to find an alternative framework which will allow the company to sell its shares in Clal Insurance as part of a deal to sell the controlling interest, or another framework which prevents the damage to the company that will be caused if the regulator’s framework is implemented.”
The company stressed the harm to the company’s value would be “immense, immeasurable, and unnecessary; and it will have far reaching consequencesfor the company and other entities.”
Published by Globes [online], Israel business news - www.globes-online.com - on March 8, 2016
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