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The global parent IKEA will require that the buyer for the Israeli branch of the company invest NIS 80-100 million in developing the chain and its inventory, according to senior sources close to the sale process.

The buyer must demonstrate the financial capability to establish another branch in Israel, according to the demand of the parent company, including the cost of long-term leasing and investment in inventory, say the sources.

IKEA's first Israeli branch was established with a NIS 50 million investment. IKEA Israel's development plan includes another two branches, one at Bilu junction and the other in northern Israel. The plan has been suspended due to questions regarding the company's ownership.

The Blue Square Consumer Cooperative Society (Coop) holds 75 percent of IKEA Israel and is under court order to sell. This has been delayed as Coop and IKEA have not agreed on the sale procedure. The remainder of the company is held by a holding company belonging to businessman Albert Gnat, who died several weeks ago. Gnat had been on the board of the parent company and took over its stake in the Israeli subsidiary in early 2002. Apparently Gnat held 5-10 percent of the shares himself and the rest in trust for IKEA.

Sources close to the sale say Gnat's heirs, his wife and daughters, will make a decision, after the formal mourning period; however, they are not rushing to make any business decisions. The sources said more than 10 groups have expressed an interest in buying the Coop stake and more may have approached the parent IKEA directly.

The sale has encountered two central obstacles: the shareholders agreement grants Gnat first refusal on any deal in which Coop sells any stake in the company, and the Coop agreement with IKEA stipulates that any buyer must first be approved by the parent company. The two conditions led to protracted negotiations in the past year with both Gnat and IKEA for Gnat's company to buy the entire Israeli company, but talks deadlocked on the value of the company.

The Kesselman & Kesselman accounting firm was commissioned by Blue Square to assess IKEA Israel's value and settled on NIS 22 million. IKEA International and Gnat considered this too low and commissioned Shlomo Ziv's accounting firm to conduct another valuation. The Ziv-Haft valuation was 10 percent lower, but industry sources expect the assessment to now be revised upward after IKEA posted good business results in 2003.