Bank Leumi Passes Into Private Hands

Ram Dagan
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Ram Dagan

Yesterday the state closed its tender to sell 9.99 percent in the country's second largest bank, Leumi. Envelopes with the sealed bids from investing consortiums were deposited with M.I.Holdings, the state body responsible for privatization matters, and were to be opened after midnight, after press time.

In the run-up to the long-talked about privatization, the interested parties were keeping their cards close to their chests. At the time of going to press, it was believed that despite the misgiving of some of the potential investors in recent days, there would be bids from more than one bidder.

The tender provides for two options for bidders. On the day of the tender, the investor - whether one buying in order to sell off to others (the financial investor) or whether one who is meant to continue holding them in order to obtain a long-term controlling interest, enabling it to run the bank (the strategic investor) - will receive a 9.99 percent stake in the bank. The strategic investor must inform the state within four months that it intends to continue holding the option to acquire a further 10.01 percent stake in Leumi within a year and a half of the first stage. Exercising the option though would require the party to undergo all necessary regulatory approvals from the Bank of Israel.

For the financial investor, though, the state insists that it must distribute the 9.99 percent stake on the open market and to reduce its own holding to no more than 5 percent. The financial investor does hold the option to acquire an additional 3 percent of Leumi within 96 hours of the first stage, though these extra shares will also be earmarked for public sale.

The potential strategic investors were the ones drawing the media attention in recent weeks, while at the very last moment, with just hours to go until bids must be submitted, financial investors also began to turn up. This may well have accounted for Leumi's 2.8 percent jump on the Tel Aviv stock exchange yesterday, more than recovering from its fall on Sunday.

The price is significant, particularly for the financial investors. Their profits will derive from the gap between the price at which they'll buy the shares from the state and the price at which they'll sell the shares. So the higher the price for Leumi's shares on the market, and the price that must be paid to the state for the stake, the less attractive the tender becomes for financial investors. The tension mounted: All day yesterday representatives of financial investors were in touch with their foreign backers, and the overriding message was that at that price, they could end up "stuck" with the goods. This did not bode well for the tender.

And, indeed, both Merrill Lynch and Deutsche Bank, two potential financial investors, announced they were withdrawing from the tender only one hour before the close of trade on the Tel Aviv stock exchange yesterday. Others - UBS and Citigroup - were expected to go ahead and submit their bids.

The Zuckerman-Safra-Lowy group had withdrawn from the race at the weekend.

By press time last night, there seemed to be two major parties seriously inclined to submit bids for Leumi - businessman Shlomo Eliyahu and the Cerberus-Gabriel group.