The Securities Authority places a significant obstacle in the way of public companies taking over an insurance company in Israel, which is expected to make it very difficult, and perhaps even prevent, the completion of the planned moves to acquire control of Clal Insurance (by Alrov Real Estate Of Alfred Akirov) and bAyalon (By the digital insurance company Assurance ). This is after the Authority defined the fundraising arm of the insurance groups as a stratum company in terms of the Centralization Law.
The Authority, led by Anat Guetta, sent letters to Alrov (controlled by Alfred Akirov) and Vishor (controlled by Emil Weinschel and Nitzan Tzair-Harim), in which it claims that the current structure of Clal Insurance and Ayalon has more than one layer, and therefore according to the law of centralization, And by alignment (which are themselves public companies), is contrary to the provisions of the law, which prohibits the existence of a pyramid of three stratified companies.
A “stratum company” is defined in section 20 of the Centralization Law as a public company or a bond company that is a reporting corporation. Privately owned) and below it is Clalbit Financing, which is a reporting corporation since it issued bonds to the public to raise funds for the insurance company that owns it (Clalbit has a debt estimated at the end of the third quarter at NIS 4 billion).
Therefore, if Alrov, which had recently applied for a control permit at Clal Insurance, had become the controlling owner of the company, a pyramid of three strata companies would have been created, a structure that was prohibited under the Centralization Law.
A similar picture emerges in Ayalon, where a deal was signed to sell its control to Vishor in June this year. Ayalon Holdings is a public company and it owns the insurance company Ayalon, which in turn owns Ayalon IPOs, which is a stratum company because it issues bonds, and currently the volume of bonds it has issued in two series is about NIS 260 million. Here, too, if Vishor acquires control of Ayalon, a pyramid of three strata companies will be created.
The options available to buyers – merging companies, selling one of them or acquiring public holdings – are all complex to impractical, and in any case will take a long time.
Who is responsible for the issue of stratum companies?
Why has the issue of stratum companies not emerged so far in the context of acquiring control of Clal Insurance and Ayalon? In the Competition Authority, the belief in the implementation of the Centralization Law, they explain that the pyramidal issue is not its responsibility but that of the Securities Authority and the Ministry of Justice.
The Capital Market Authority, which is the regulator responsible for the insurance world, is also in the circle, and they have already begun examining the issue. The Capital Market Authority has so far not been required to examine the issue of strata in Clal Insurance and Ayalon, as it is relevant only when a control permit application is submitted – and these were recently submitted by both Alrov and Vishur (which began the process of acquiring control in Ayalon in June, but submitted the application For a control permit only at the end of November).
The issue raised by the stratum companies is the Securities Authority and not the Capital Market Authority, and in the past there have been frequent frictions between the two supervisory bodies, for example over the supervisory powers of financial service providers, and even now the Securities Authority’s involvement may ignite disagreements. Renewed between them.
The companies examine the issues of regulation and financing
About ten days ago, Alirov Real Estate of Akirov submitted an application to the Capital Market Authority for a control permit in Clal Insurance. Alrov must invest an amount similar to that of the value of its existing holdings, ie about NIS 800 million.
As aforesaid, Vishor announced the transaction for the acquisition of control of Ayalon from the Rahmani family towards the end of June, in a transaction worth NIS 472 million (for 67% of the shares). As part of the financing of the deal, Weinschel and Tzair-Harim decided to include partners in the deal, and chose Caesarea, which is controlled by businessman Zvi Barak and his wife. The parties signed a transaction according to which Barak will acquire approximately 25.6% of Ayalon Holdings’ shares at the same time as Vishur acquires control of Ayalon.
And how do the buyers intended for the obstacle placed in front of them react? Balrov explained in a report to the stock exchange that “the outline of the acquisition of the controlling interest in Clal Insurance Company (which has not yet been formulated) is inherently subject to compliance with all applicable regulations and laws.
Emil Winshel (right) and Nitzan Tzair-Harim, founders of Vishur / Photo: Eyal Yitzhar
Vishor clarifies that the completion and execution of the transaction is conditional on the fulfillment of conditions precedent, specified in the agreement, until May 1, 2022. Formulate the various alternatives they face in the matter, including options for changing the status of a stratum company in Ayalon to a company that is not.
In addition, the company noted, it is examining ways to complete the transaction financing, which by their nature may also have an impact on the structure of the holdings. “To the extent that the Company believes that there are issues that require examination or regulatory approval or by a court regarding the Centralization Act, the Company will act accordingly,” they explained in the alignment.
Will have to make a structural change in the acquired company
The meaning of the ban on the acquisition of control of Clal Insurance or Ayalon by a public company in the current situation is that in order to obtain the control permit, Alrov and Vishor will have to make a structural change in the acquired company, or waive the acquisition.
One possible solution is a merger between the public holding company and the insurance company held by it, which would abolish the definition of the financing company as a stratum company.
Theoretically, this move is possible, but it is a complex procedure that will limit the financial activity carried out by the parent company, since insurers are subject to restrictions regarding investments in public financial companies. In addition, the adjustments required for the unification of the strata will make the transaction financially burdensome, and will make it significantly more expensive. It is also doubtful whether the controlling shareholders will be interested in such a structural change, which may remove them from the board of the subsidiary.
Also the possibility of trying to redeem the issues of the issues made by the financing companies at the bottom of the pyramid, or sell them and thus bring about their cancellation, is not a simple move, as it may be considered a stakeholder transaction, due to controlling interests during it. It should also be remembered that in the case of Clal Insurance, this is a huge amount to repay the debt of Clalbit Financing.
Another possibility is to turn the acquiring company (Alrov / Vishor) into a private company. In the case of Alrov, it seems that this is a move that will require Makirov to invest close to a billion shekels, which it is doubtful whether he can or is interested in carrying out. In alignment the amount is much smaller, but even here it does not seem that the controlling shareholders would be happy to spend such a significant amount shortly after completing the company’s IPO.
Another aspect that may be significant is the different nature of the moves to acquire control of Ayalon and in general. While in Ayalon the current controlling shareholders, the family of the founder, the late Levi Rahmani, want to sell the shares, and they will try to promote the sale, in Clal Insurance, which is conducted without a controlling interest, the situation is much more complex. , Are not enthusiastic, to say the least, about Akirov’s takeover of the company, so it’s hard to believe that they will lend a hand there to promote structural change that will help him along the way.
Alrov’s and alignment options for canceling a layer in a pyramid
the solution:
Merger of the insurance company to the holding company above it
The problem:
A complex procedure that will limit the company’s financial activities, and may remove the controlling shareholder from the board of directors
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the solution:
Debt settlement or sale of debt
The problem:
A move that requires significant fundraising and that may be considered a stakeholder transaction
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the solution:
Making the acquiring company private
The problem:
The cost of purchasing the shares is high and requires the company to be listed on the stock exchange