The capital market is still trying to establish the nature of the transaction in which it is acquiring Clal Insurance The credit card company Max. Meanwhile, the deal received a cold reception, to say the least, and on the first trading day after the publication of the memorandum of understanding between Clal and the American investment fund Warburg Pincus, the stock fell rule About 6.5%.
The market estimates that the decline was due in part to the fear that Clal would be required to raise large amounts of capital to complete the purchase, which would hurt the share price. The insurance company will be required to pay for the full ownership of the credit card company about NIS 1.6 billion (net), about a third of that in the allotment of shares in Clal. In other words, it must complete more than a billion shekels in advance, after raising about NIS 500 million last January by issuing shares.
Raising such capital has several consequences. First, dilution of the existing shareholders’ holdings, in addition to the dilution they will absorb as part of the planned transaction: an allotment of 4.99% of Clal Lorburg Pincus shares and another 2% to the other major shareholders in Max (Menora Mivtachim, Clal itself and Allied led by Yitzhak Suari).
Beyond that, prior to the IPO investors demand a discount on the stock price on the stock exchange, otherwise they have no reason to participate in the course. The discount request creates pressure on the share price and may reduce its value even before the issue. Clal itself, by the way, reported that the price at issue, if executed, is known in advance, and stands at NIS 76.85 per share, higher than the average price of a Clal share in the past month.
Finally, Clal’s stock has recorded a very high return recently, and until the signing of the Memorandum of Understanding with Max’s owners added 36% to its value within 12 months. Therefore, for some investors, especially when it comes to a big deal that may be heavy for Clal and increases the risk – it’s time to take a step back and realize some of the profits earned.
Another concern: entering a new field of activity
In the capital market, there are also those who claim that the decline in Clal’s share is due to the fear that the company is expected to enter a new field of activity, while moving away from its core business. At least three insurance companies are already in the credit world: a direct insurance group, which also owns a direct financing company; The Phoenix, which owns the non-bank financing company Gamma; And Menora Mivtachim, which is owned by the non-bank credit company ERN.
As for the question of whether Max’s pricing as reflected in the deal is too high, a senior investment official says he is not thrilled by the spot drop in the stock – especially when it has not trickled down to the next trading day (Tuesday). “This is a legitimate use of buying a private company, even if it is not necessarily done in accordance with the capital market. If you buy for NIS 1.6 billion a company that made a net profit of more than NIS 150 million in the past year, there is no reason not to increase Max’s profits. Especially when the use of credit cards increases and Max increases her loan portfolio, “he explained.
Regarding syndication between companies coming from different fields, especially when sharing information between them requires approval under the Privacy Protection Act, the same investment man noted that even if two years or more pass before Clal’s two legs (if and when the deal goes through) cooperate, in the end it will happen. This is especially true when Max has already opened an insurance agency, and will be able to market Clal products (although it will work in the objective agent model, where it will receive a uniform commission from 4-5 insurance companies).
Barkat will be required to question Clal’s permit
The last factor that could have influenced the decline in Clal’s stock is the fear that the deal will not be regulatory approved. Along with the Competition Authority, which must check whether the Centralization Law has not been violated here, especially in the world of credit cards, the Bank of Israel, the Supervisor of the World of Credit and Trust in the approval of the credit card company, will have to examine an issue of conflict of interest.
According to the guidelines of the Supervisor of Banks, in order to obtain a control permit in a credit card company, a conflict of interest must be avoided. In this context, the Bank of Israel document states the general criteria and conditions that the applicant must meet to control and hold means of control of the clearer and a credit card company, that “the activities of the clearing controllers will be limited so that conflicts of interest between them and the clearer are avoided. Their involvement from the companies competing with the clearing house. “
Clal currently holds about 7% of Isracard’s shares, mainly through members’ money but also with its nostro money, and the question is whether the company will have to sell the shares in order to receive the approval.
The Bank of Israel stated in response that “no request for approval was received, and in any case we did not receive any details and information related to that request. When it is received, it will be examined in accordance with the published criteria.”
also Commissioner of the Capital MarketDr. Moshe Barkat will be required to issue a permit. In his examination, Barkat is expected to address two main issues. The first is that Clal Holdings’ control permit does not include a holding permit in a credit card company. Such a permit that holds in her hands at all is enough.In general, it is believed that no special permit is needed, again, since there are already insurance groups holding an insurance company alongside a credit company.
The second issue is that Clal’s members’ money is invested in Max, and these shares will be sold to Clal Holdings. In this context, Clalit, like the other minority shareholders in Max – Menora Mivtachim and Allied – are obligated under the agreements with Warburg Pincus to sell their holdings together with the controlling shareholder (as is customary in such transactions – bring along), and they will receive exactly the same conditions. Matters.
The issues to be examined prior to the approval of the Clal-Max transaction
Competition Authority: Does the acquisition violate the law of centralization in the financial market, and is contrary to the Shtrum law that separated Max from Bank Leumi
Supervised by the banks: Clal’s financial strength and lack of conflict of interest
In the Capital Market Authority: Does Clal need to obtain a holding permit in a credit card company, in parallel with a holding in an insurance company; Is there a problem in the sale of Clal’s holdings in Max to the insurance company
In the Privacy Protection Authority: Can the credit card company transfer information to the insurance company, and vice versa