Delek Group Dusting Off Plans to Split Itself Into Two

As sale of Phoenix stalls, conglomerate weighing plan to spin off non-energy businesses into separate company.

Tomer Appelbaum

Delek Group, the holding company controlled by Yitzhak Tshuva, is reviving plans to split itself into two groups amid expectations that the sale of its insurance company Phoenix to China’s Fujian Yango Group will not win approval from regulators, The Marker has learned.

Delek has sought to reposition itself as a wide-ranging conglomerate, with holdings in everything from energy to real estate, vehicles and insurance, into a group focused on energy exploration.

But after divesting some 3.3 billion shekels ($890 million) in assets, Delek’s plans have run aground on its failure to find a buyer for Phoenix, one of Israel’s biggest insurance companies and a major Delek holding.

In its third attempt at selling Phoenix, Delek reached an agreement to sell it to Fujian Yango last August for 1.95 billion shekels. Last week, the Chinese company agreed to extend the deadline to complete the deal by another month, but Delek executives are growing increasingly skeptical that Dorit Salinger, the capital markets commissioner, will ever give the green light to sell an insurance company to a Chinese group.

Unlike the other divestitures, Delek is under orders from the government to sell its 52.3% stake in Phoenix under the business concentration law, which requires big holding groups to other sell their financial-services assets, such as banks and insurers, or its non-financial assets by the end of 2019.

Delek has already retained advisers for the breakup plan, which revives one set aside in 2013. It would split Delek Group into two businesses, much like Idan Ofer did with his Israel Corporation in 2015. But unlike Israel Corporation and its spinoff, Kenon Holdings, and other big holding groups, Delek Group is regarded as financially stable.

Thanks to progress in developing its Israeli energy assets, mainly the gas framework agreement reached last year, Delek Group shares have risen 35% in the last 12 months. On Sunday, they closed 0.9% higher at 859.50 shekels, giving it a market cap of 10.3 billion shekels.

Still, that values the group well under the 15 billion shekels it traded at at its peak in May 2014.

The existing Delek Group would hold all of the conglomerate’s energy assets. These consist in the main of Delek Drilling and Avner, both of which are partners in the Tamar and Leviathan gas fields. Delek Group holds them mainly through another subsidiary, Delek Energy, as well as directly. It also controls 51.8% of Cohen Development.

Overseas, where Delek has been seeking to expand its energy business, the group now has a 19.7% stake in Ithaca Energy, a producer of North Sea oil listed in London and Toronto. Earlier this month Delek made a tender to offer to buy the rest of the company from other shareholders for about $525 million.

Delek’s other overseas energy assets include a 13.2% stake in Faroe Petroleum, another North Sea operator, which it bought for 43 million pounds ($53.7 million) in December. It also owns 17.5% of Ratio Petroleum, holds exploration licenses in Malta and Guyana, and has an option for a license in Ireland and a joint production agreement in the Philippines.

The assets that would be spun off into a new company traded on the Tel Aviv Stock Exchange would include Phoenix as well as a 22.5% stake in auto importer Delek Auto, a 50% share in the desalination-technology company IDE as well as 100% of Gadiot Biochemical and Delek Israel.

Splitting the group into two should increase the valuation of the energy holdings – an outcome management hopes to further enhance by then dual-listing the shares in either London or New York.