The Migdal Insurance company took advantage of rising share prices to sell off Bank Leumi shares for $80-100 million Wednesday night.
The transaction was managed by the UBS investment house, and the shares were sold to foreign and local buyers. Migdal held 8.07 percent of the bank, and the value of its holding up to Wednesday was around NIS 1 billion, based on Leumi's current price. The same stake was worth only about NIS 600 million just six months ago.
Following last night's sale, Migdal's holding of Leumi fell to between 4 and 5 percent.
Migdal built up its stake in Leumi through several separate transactions at the end of the 1990s, as part of a plan to take control of the bank. However, both banking regulators and the Antitrust Commission were against the idea, so Migdal put its program on hold.
The authorities' objections pivoted around the fact that Migdal was already the largest player in the insurance market, while Leumi, which also holds 20 percent of Migdal's shares, is one of the two largest banks in the country. The regulators therefore objected to these two dominant companies joining forces in either market, much less both, given the potential for abusing their joint powers. Only a few months ago, the governor of the Bank of Israel referred to the idea as "incestuous."
Starting in June 1999, Migdal bought shares in Leumi until it built up its 8.07 percent holding. The acquisition was conducted despite sharp criticism of the move from Migdal's external directors, who slammed it as adventurous. At the same time, Migdal also bought a further 1 percent of Bank Leumi using funds from its life insurance operations. However, these were bought during an upswing in prices, and the company saw the gap between the price paid and the market value of the holding grow to almost NIS 400 million. As a result, Migdal was forced to write down its holdings and officially record a provision of around NIS 50 million for the fall in price.
This was not the only problem with the purchase. The heavy spending spree ate up most of Migdal's available funds for investment, and this prevented the insurance company from pursuing other investment plans it had at the time, such as a similar attempt to buy control of United Mizrahi Bank.
Then the wind changed: Shares took off over the past 12 months, and Leumi, too, was caught up in the recovery. As of Wednesday, therefore, Migdal's Leumi holding had reached a value of almost NIS 1 billion.
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