Shari Arison's sale of the controlling interest in Shikun & Binui Holdings Ltd. (TASE: SKBN) was motivated by the need to comply with the Promotion of Competition and Reduction of Concentration Law. The Arison group realized that there was a reasonable chance that, by the end of next year, it would be caught by this law, which would require it to immediately sell one of its two main holdings: Shikun & Binui or Bank Hapoalim (TASE: POLI). Now that Arison has made her choice, it might be thought that the option of selling the controlling interest in Bank Hapoalim is off the agenda, but such is not the case.
The Arison group owns 20% of Bank Hapoalim with a value of NIS 6.6 billion. Nine months ago, Arison signed a memorandum of understanding for adding partners to the controlling core in the bank; three foreign investors were to have bought 49% of Arison Investments, the owner of Bank Hapoalim's controlling core, for NIS 2.4 billion, but the deal eventually fell through.
Even if this deal had succeeded, however, it would not have solved Arison's problem of compliance with the Promotion of Competition and Reduction of Concentration Law, because even after the deal, she still would have been one of the bank's controlling shareholders. The reasons for taking on partners in the bank is therefore still relevant. Actually, the Arison group has been trying to recruit investors and sell at least some of its holding in Bank Hapoalim for three years.
Finding a partner for the bank: A difficult challenge
Arison is trying to reduce her exposure to the bank, whose growth over the years means that it constitutes a large proportion of her assets. The group has set aside the proceeds from the sale of Shikun & Binui for new investments. Arison Investments also owes NIS 1.8 billion, a considerable debt. Nevertheless, the proceeds are not being earmarked for debt reduction; at most, these proceeds will be a future source for repayment of the debt in case it is needed. The group has taken steps in recent years to reduce its leverage, among other things by rescheduling debt or repaying it ahead of time.
On the other hand, finding a partner for Bank Hapoalim is no simple task. The deal that was put together failed because the parties discovered that there were obstacles in the way of implementing a deal to add foreign investors to a private company. Among other things, issues arose such as taxation, division of control among the parties, and there was also the possibility of regulatory restrictions applying to foreign investors in their original countries to consider (some of the investors were institutions).
It therefore cannot be ruled out that the group will prefer to recruit investors by selling shares in Bank Hapoalim itself instead of selling shares in the private company that owns the controlling interest. Selling shares in the bank could be a simpler procedure. On the other hand, it will require the formation of a new controlling core in Bank Hapoalim to the satisfaction of the Bank of Israel, which is a more difficult regulatory process. In addition, if the price was right, we would not be surprised if Arison sold all of her holding in Israel's biggest bank and said goodbye to most of her holdings in the local market, which have caused her many headaches in recent years.
The US investigation
The timing for recruiting investors for Bank Hapoalim, however, is not ideal. The bank is currently in the middle of a long and complicated investigation by the US authorities into suspicions that it aided US customers in tax evasion. The bank has made a NIS 1.5 billion provision to date for this investigation, including legal expenses, and there is a long way to go before it ends.
Meanwhile, the Arison group is in no hurry. It is now in compliance with the Promotion of Competition and Reduction of Concentration Law restrictions and is receiving a dividend amounting to 40% of Bank Hapoalim's profits each quarter.
Another source of profit the Arison group is likely to enjoy soon is a sale of shares in Isracard. The Increasing Competition in Banking Law obligates Bank Hapoalim to sell this credit card company. The bank is considering a distribution of at least some of Isracard's shares as a dividend in kind to its shareholders. The shareholders, headed by the Arison group, will be the beneficiaries of such a measure - they will directly receive a company with NIS 3 billion shareholders' equity.
Published by Globes [online], Israel business news - www.globes-online.com - on June 14, 2018
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