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The Migdal insurance company is offering the Wertheim-Ofer group, which holds a controlling stake in United Mizrahi Bank, a stock swap deal to acquire its Mizrahi holdings in return for Migdal's shares of Bank Leumi.

Migdal is interested in unloading its 9.5-percent share of Leumi because the Bank of Israel will not allow the insurance company to bid for a controlling share of Leumi, since this would result in a tremendous concentration of economic power. On the other hand, Migdal can acquire the smaller bank - Mizrahi - as long as it no longer owns shares of a competing bank, in this Leumi.

Muzi Wertheim and the Ofer brothers, Sammy and Yuli, each own a 26-percent share of Mizrahi, giving them a controlling share of the bank. Migdal has stepped up its efforts in recent weeks to work out a deal for purchasing the Mizrahi stake.

However, Migdal lacks the funds to make the deal due to finances it has tied up in Leumi shares.

During the past two years, Migdal has purchased 8 percent of Leumi and holds another 1.5 percent against insurance policy investments. Migdal invested NIS 1 billion to buy Leumi shares, but these stocks are now worth only about NIS 715 million.

Due to the gap between the market value and book value, the insurance company asked for an external assessment of Leumi's value by the accounting firm of Kesselman and Kesselman. Migdal expects to receive the assessment during the coming days, after which the company will decide whether to write-off the loss of investment value should the external assessment be low.

A stock swap deal between Migdal and Wertheim-Ofer would also likely include an additional payment from Migdal, since its Leumi shares are worth less than the 52-percent stake in Mizrahi that is up for sale.

The Bank of Israel's supervisor of banks and the treasury's supervisor of insurance are expected to approve the deal, but will instruct Leumi to divest itself of its Migdal holdings. Leumi currently owns a 20-percent share of the insurance company.

Unless these shares are unloaded, the regulatory authorities will not allow Migdal to acquire the Mizrahi bank for fear of potential conflicts of interests and excessive centralization of economic power. Leumi, on the other hand, is holding out for an attractive offer for its Migdal shares.

The Italian insurance company Generali, which owns a controlling share of Migdal, has given Migdal's chairman Aharon Fogel and CEO Izzy Cohen the green light to pursue the possibility of acquiring Mizrahi, but has not yet granted its final okay. Mizrahi's CEO Victor Medina is likely to travel soon to Italy to present information about the bank and explain the advantages of the proposed deal.