Many in the capital market were surprised over the weekend, when it became known the amount that the winning group in the tender for the acquisition of control of the public transport company is willing to pay. bundle. On Friday, Egged announced the group, which consists of the insurance company tower Car importer Crash Motors And the Investment Fund for Infrastructure beam Because it is expected to win the tender, after submitting a bid to purchase 50.01% of the shares in exchange for an amount that reflects a company value of NIS 5.6 billion – NIS 1 billion higher than the next bid in line.
According to the terms of the auction, Egged members, who currently hold full ownership in the company, have a put option (PUT) that will allow them to exercise shares according to the value embodied in Egged in the winning bid, over a period of three years.
The offer, which is much higher than expected, led Egged to introduce a new and surprising condition that was not in the tender, and when it announced the results of the auction on Friday, it asked the winners to pay it 15% of their bid – NIS 420 million – derived from a NIS 2.8 billion bid for half shares Egged – in the next two weeks (until April 25). This is a significant requirement to prove the seriousness of the intent of the winning entities. At the same time, an assembly of Egged’s shareholders, consisting of Egged members (approximately 1,300 in number), will soon convene to approve the transaction.
Committed to completing partner partnership by May
As mentioned, the Migdal-Carasso-Aluma Group’s proposal reflects a higher value of NIS 1 billion from the next bid, by a group led by the Keystone Infrastructure Fund, and probably even higher in relation to the amounts of other prominent contenders who did not reach the final stage.
Egged undertook as part of its subsidy agreement with the State of Israel, signed in 2018 and valid until 2029, to bring in an investor who will hold at least 50% of the company. As part of the agreement, Egged is obligated to complete the partner’s Knesset by next May, and on Friday it called the winning group to announce its victory.
In the event that for some reason the process does not end successfully, the state has the option of imposing fines on Egged, and in a negative scenario it may also take away some of the clusters in which it operates its public transport lines.
According to estimates by parties close to the tender, due to the high value that can be attached to the bid and the changing interest rates in the world, challenges may arise in the financial closing of the transaction in the future.
“The initial amount is not a ‘big deal’, but the question is whether the parties are willing to put cash in, when there is a chance that they will find problems later in the financial closing of the deal,” said a source close to the tender, referring to Egged’s new payment requirement.
He said, “This is a tender that was contested by four other groups that examined each comma and letter. The winning bid is NIS 1 billion higher than the next bid in line, and this could create difficulties in closing the financial position.
“If the institutions that competed in the tender and did not win offered to bind, in the most aggressive way, a value of NIS 4 to 4.5 billion, then how will they now provide funding to entities that win such high volumes?”, The close source adds. “In addition, market conditions have also changed in recent months. Interest rates around the world are climbing, and when they submitted the offer they did not know they would climb like this. Egged is an operating company, not an income-producing asset, and there is a higher risk.
Regarding the sellers in the transaction: Assuming the sale of all their shares in the company, each of Egged’s members will receive an amount of approximately NIS 4.2 million gross (half of the amount immediately and half upon exercise of the sale option of the remaining shares).
The one who is still expected to profit significantly from the deal, as long as it is successfully completed, is the state. Under the state’s agreement with Egged, it is entitled to receive from the transportation company 25% of the amount to be paid for its shares.
In other words, this is an amount of NIS 700 million for the sale of half of Egged’s shares, and a similar payment upon completion of the sale of the remaining shares (assuming that all 1,306 Egged members will exercise their shares in the company). So, in total, this is a payment of up to NIS 1.4 billion. To this amount must also be added the capital gains tax at a rate of 25% to be paid by Egged members who decide to sell their shares, which will flow into the public coffers.
Real estate with an estimated value of NIS 1.5 billion
Egged operates a fleet of over 4,000 buses. The company has 9,100 employees, of which 6,760 are drivers. The company’s revenues total more than NIS 4 billion a year, with fluctuations in recent years due to closures during the Corona period.
Egged’s activity also includes real estate with an estimated value of NIS 1.5 billion. These are mainly garages, operations centers, commercial areas and offices. The company manages 50 sites throughout the country, spread over 746,000 square meters, of which it owns 21 sites. In an area of 394,000 square meters. The sites are spread all over the country, and include 47 dunams on the Carmel coast in Haifa, 44.9 dunams in Holon, a central station in an area of 10 dunams in Lod and many other properties.
In 2020, Egged’s revenues totaled NIS 3.6 billion, a decrease of 10% within a year, due to the consequences of the epidemic. EBITDA (profit before interest, taxes, depreciation and amortization) climbed by 8% in 2020, to NIS 703 million.
Egged predicted at the time of the tender that in 2021 its revenues would grow to NIS 4 billion, and that in 2022 they would grow by 8.3% compared to 2021, to NIS 4.32 billion. They are expected to continue to grow to NIS 5.9 billion until 2029, when the company’s EBITDA will increase from NIS 856 million in 2021 to NIS 1.06 billion this year, and is expected to reach NIS 1.65 billion in 2029.
So what did the Egged winners see that so excited their imagination that they offered the generous sum? A source close to one of the entities in the winning group claims that “there is a huge growth potential in this deal. Egged is the leading and dominant player in Israel in the field of public transportation.”
“The winners saw the company’s performance, the service scores it received from the Ministry of Transportation and its abilities to grow in the various clusters, opportunities for great growth,” says another source close to the tender. “The state is financing the replacement of Egged’s bus fleet, and this will lead to an improvement in its operating profitability. This is a company that will operate the light rail line, and the parties will probably work to take its real estate out to flood value. There is a company here with low leverage with strong cash flow. “
Itzik Weitz, CEO of Carasso Motors, which belongs to the winning group, published an official comment on the win, saying that the company “sees the Egged deal as a significant part of Carasso Motors’ growth strategy in the world of transportation services, a direct continuation of last year’s acquisition of Kal Otto.”
Weitz hinted at the investment deal led by Bekel Otto in September 2020, after which eyebrows were raised about the leasing company’s pricing. In the same transaction, Carasso acquired Kal Otto without consideration, when it has a debt of NIS 1.5 billion. Later, however, the deal turned out to be successful. In 2021, revenues from the leasing sector increased by 31% to NIS 1.7 billion, and segment profit doubled to NIS 200 million.
What are the future plans of the winners? A source close to the winner estimated that an IPO would be made on the Egged stock exchange. It is still unclear at this time whether the real estate activity will be split, or whether the partnership will choose to lead massive Egged financing moves through the capital market, but such moves are expected to be launched after the completion of the transaction. “
ID card bundle
activity: Operation of public transportation in Israel, Egged HaSaim (tourism and shuttles), operation of the red line on the light rail in Gush Dan (bidding for additional future tenders), holdings of public transportation in Poland (Mobilis) and the Netherlands (EBS), holds real estate in Israel worth NIS 1.5 billion ( Garages, operating and maintenance areas)
history: Established in 1920, when trucks were purchased from the British in the Hebrew settlement and converted into public transportation
data: Has a fleet of 4,000 buses (of which 2,832 in Israel), 6,760 drivers, and a total of 9,100 employees. The company has 1,306 shareholders