Three independent external directors in holding company JOEL Jerusalem Oil Exploration Ltd. (TASE: JOEL), who make up the company's audit committee, have rejected the partial offer to purchase submitted by YHK, the group's controlling shareholder, for 25% of the shares in Equital Ltd. (TASE:EQTL). The audit committee members said that they made their decision because JOEL was currently engaged in estimating the economic value of JOEL and Equital for the negotiations on a merger of the two companies with the independent external directors of Equital.
Haim Tsuff is an associate of Koby Maimon who holds a 74% controlling interest in YHK, who is reputed to exercise effective control of the Equital-JOEL group. The Livnat family, the controlling shareholder in infrastructure company Taavura Holdings, owns the other 26%. YHK currently holds 48.7% of the voting rights in Equital, but it is seeking to acquire 25% more of the Equital's shares, given Equital's intention to merge with JOEL, its subsidiary. YHK raised NIS 400 million for this purpose in a private bond issue for investment institutions, with which it plans to use to buy 14.1 million Equital shares at NIS 97.70 a share. Equital's share price in today's trading was NIS 97.20. The deadline for accepting the offer to purchase is this coming Sunday.
An effort to reduce the pyramid
Equital is a three-level pyramid of public companies, and under the Promotion of Competition and Reduction of Concentration Law, the three layers must be reduced to two by the end of next year. Equital is therefore trying to merg its JOEL subsidiary, currently the second layer in the control pyramid, into itself. This will make the third layer, which includes Naphtha Israel Petroleum Corp. (TASE: NFTA) and Airport City Ltd. (TASE:ARPT), the second layer in the pyramid. On the other hand, JOEL has an 8.56% minority cross-holding in Equital that was included in YHK's offer to purchase. The sale of this holding could ostensibly have left a large proportion of the money for the purchase within the group, but JOEL's independent external directors elected not to accept the offer, in view of the merger proposal.
Through JOEL, Equital controls real estate company Airport City and the Isramco Negev 2 LP (TASE: ISRA.L) oil and gas exploration partnership, which owns 28.75% of the Tamar natural gas reservoir. The Equital-JOEL merger is slated to take place through a purchase of the public's holdings in JOEL, which have a current market value of NIS 2.3 billion. The boards of directors of both companies have already begun negotiating on the proceeds to be received by the minority shareholders in JOEL, to consist of shares to be issued to them by Equital, cash, or a combination of the two.
Published by Globes [online], Israel Business News - www.globes-online.com - on February 1, 2018
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