Big, Mega Or offer to buy Blue Square Real Estate

Shraga Biran  photo: Vardi Kahana

Alon Blue Square's share price shot up 31% on the news.

Big Shopping Centers (2004) Ltd. (TASE:BIG) and Mega Or Holdings Ltd. (TASE:MGOR) are making a joint offer to acquire a 53.92% controlling interest in Blue Square Real Estate Ltd. (TASE: BLSR). Sources inform "Globes" that the two companies have made a proposal to Alon Holdings Blue Square - Israel Ltd. (NYSE: BSI; TASE: BSI), Blue Square Real Estate's parent company, to acquire the subsidiary at a company value of NIS 1.65 billion. Alon Blue Square's share price shot up 31% on the news.

Blue Square Real Estate's current market cap is NIS 1.2 billion, following a 4% drop in the share price in the day preceding the offer. The offer price is therefore 37% higher than the company's market cap and 9.3% more than its equity. If the offer is accepted, the bidders will pay Alon Blue Square NIS 890 million for the controlling interest.

The offer is a very dramatic development, given that the Mega supermarket chain (which has no connection to Mega Or), a subsidiary of Alon Blue Square, is on the threshold of collapse, and needs a capital injection from its parent company.

Mega employees will demonstrate in front of the office of Alon Blue Square controlling shareholder Shraga Biran, demanding that the company owners, including David Wiessman and the kibbutzim, inject a further NIS 50 million into Mega. From this perspective, the acquisition proposal is a trap for the owners of Mega, since a sale of Blue Square Real Estate will give the parent company enough capital to support Mega. It is believed that this is a scenario that the Mega owners, who have already made it clear that they will not support the Mega chain beyond what was agreed, will avoid if at all possible.

Under the proposal, the prospective buyers will conduct thorough due diligence for 10 days, while simultaneously formulating an agreement for a complete acquisition. The offer also requires approval by the Antitrust Authority director and other authorities.

Another condition for the offer relates to a ruling by the District Court, which is conducting a hearing about the arrangement for Mega Retail, stating that the leases agreed by Mega and Blue Square are a single unit, and all of them will be either honored or canceled.

Big and Mega Or are including this clause in order to protect themselves against a possible sale of the Mega chain in parts, since most of Blue Square Real Estate's supermarket properties are leased to the Mega chain. This will eliminate the possibility of a potential buyer choosing to buy the best Mega branches, leading to the vacating of the other branches rented by the chain - a measure liable to cause Blue Square Real Estate damages amounting to tens or hundreds of millions of shekels.

Big and Mega Or are offering to deposit NIS 100 million in a trustee account on account for the proceeds of the deal when due diligence is completed. If the conditions are not fulfilled, the money will be repaid within 60 days. If the deal goes through, the buyers will pay half of the acquisition price within 30 days, minus the sum deposited in the trustee account, and the balance within 60 days.

The offer made today is valid until next Monday, January 18.

Published by Globes [online], Israel business news - www.globes-online.com - on January 14, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

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Shraga Biran  photo: Vardi Kahana
Shraga Biran photo: Vardi Kahana
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