The IDB group, controlled by Eduardo Elsztain, has two days left before the deadline imposed by Supervisor of Capital Markets, Insurance and Savings Dorit Salinger to sell its holdings in Clal Insurance to a third party. However, the group has yet to come to an understanding with Chinese firm Macrolink - the only candidate still in the running for the acquisition of the third largest insurance group in Israel.
Market insiders say IDB demanded from Macrolink a commitment to pay in advance predetermined compensation in case the deal falls through - a break-up fee - even if the reason for its failure is its rejection by the regulator.
Macrolink is refusing the condition, which IDB is demanding again, as it did two years ago during its last attempt to offload Clal Insurance.
At the time, the demanded break-up fee was NIS 150 million, which scared off potential buyer Li Haifeng, who refused to commit to the fee. IDB and Macrolink have yet to discuss the compensation, but it is likely IDB will ask for a similar fee as in the past.
Chinese fear Salinger
However, market sources believe that is not the main obstacle holding up the signature of a binding agreement, which on the face of it is an obvious move given the lack of alternatives and the concern that the Ministry of Finance will not agree to postpone the deadline for signing such an agreement.
“Everyone is aware of the timetable pressure, and they are in the final phase of negotiations. But, alongside the issue of compensation through a break-up fee, Macrolink is also aware of the problematic and suspicious way in which Chinese firms are regarded, and are more worried about whether and how they will receive approval from Salinger,” the sources said.
The sources added that the difficulty for foreign groups in receiving approval for the acquisition of a controlling stake in Israeli insurance companies over the past few years worries these companies much more than the financial conditions, which have yet to be agreed upon.
On price, the two sides do not seem to be far apart. According to reports thus far, Macrolink offered NIS 2.48 billion based on a valuation of NIS 4.52 billion - a 70% premium over market price - with the actual figure to be adjusted according to Clal Insurance's shareholders' equity at the time of the deal.
Meanwhile, it seems the parties have a vested interest in signing an agreement to allow them to pass to the next stage - receiving the regulator’s permission. According to the timetable set by Salinger, the parties must sign a binding agreement by the end of the present year and the buyer must receive regulatory approval in the first six months of 2016.
Salinger has signaled she will not budge from that timetable.
“Fosun is hot on the Phoenix deal”
The Clal deal is not the only sale of control in a major local insurance group to a Chinese company on the agenda. Delek Group, controlled by Yitzhak Tshuva, has been holding advanced talks for the sale of its holdings in the Phoenix Group to Chinese company Fosun.
That deal is similarly plagued by uncertainty over regulatory approval - the Chinese origin of the buyer is likely the only reason holding up the completion of the deal.
Delek CEO Asaf Bartfield said Sunday, “The Phoenix deal was done, including a closing date, except for the regulatory approval. The deal would have been done had it not been for what happened.” Many believe the arrest of Fosun’s founder by the Chinese authorities stacked the cards against the deal’s approval by the regulator.
“The Chinese were in Israel last week, and they were set on the deal and this whole event accelerated their motivation to close. I hope we close the deal,” Bartfeld said.
A Fosun delegation was also expected to arrive in Israel this week to meet with Ministry of Finance officials and Delek executives to advance the deal.
Published by Globes [online], Israel business news - www.globes-online.com - on December 29, 2015
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