A snag has cropped up in the sale of Markstone Capital Partners Group LLC's 23% holding in Psagot Investment House Ltd. to Apax Partners. Sources inform ''Globes'' that the main point of contention is Markstone's demand for an option for an additional payment if Apax sells Psagot in the future at a higher value than in the present deal. Market sources believe that Apax may press Markstone to sell its Psagot shares by deciding that Psagot will not distribute a dividend.
Markstone relies on Psagot's annual dividends as its main source of funding to finance its bank loans. It cannot be ruled out that Apax Israel CEO Zehavit Cohen will exploit this dependence to pressure Markstone to compromise on the sale terms. Markstone managing directors Amir Kess and Ron Lubash are handling the talks.
In 2006, Markstone borrowed NIS 1 billion from banks to acquire mutual and provident funds from Bank Leumi (TASE: LUMI) and Bank Hapoalim (TASE: POLI). It founded Prisma Investment House on the basis of these funds. When Prisma folded, Markstone had no way to repay the debt, and in the sale of Prisma to Psagot in 2009, it was stipulated that Psagot would distribute an annual dividend of 85% of its profits in 2009-11. This dividend enables Markstone to service its debt to the syndicate of Israel Discount Bank (TASE: DSCT), First International Bank of Israel (TASE: FTIN), Mizrahi Tefahot Bank (TASE:MZTF), and Union Bank of Israel (TASE: UNON).
The next dividend is due to be distributed in April 2011, after Psagot publishes its full-year financial report for 2010. Sources inform ''Globes'' that Psagot's profit, based on its results for January-September) will be NIS 160 million. However, Psagot was fined NIS 150 million, as part of the settlement between Apax and the State Prosecutor in exchange for closing the criminal case against Psagot in the securities running affair.
This means that Cohen can claim that Psagot cannot distribute a substantial dividend for 2010's profit, which will create a problem for Markstone with the banks. Although Psagot could distribute a dividend by reducing its equity, this is a long and complicated procedure, and will in any case require Cohen's approval as Apax is the controlling shareholder in Psagot.
Published by Globes [online], Israel business news - www.globes-online.com - on December 15, 2010
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